Is it time to refinance?

It very well may be. The most urgent reason to do so is if the homeowner has an adjustable rate mortgage, or an ARM, and it's about to reset upward. That way the payments can be kept from changing too much or not at all. To cash out some of the built-up equity for a home improvement project or something else could be another good reason to do it. And there still are older loans with high interest rates that could benefit from today's low levels.

There are a few things that need to be taken into account, though. Is there a prepayment penalty on the existing home loan? That's vital to find out. These penalties usually equal 6 months of interest payments and are set off in case of a refinance, or even a sale of the house. They often are in effect during the first two or three years. All these time frames and dollar amounts can vary from one mortgage loan to another, so it's important to carefully check what the terms actually are.

Secondly, the mortgage marketplace has changed quite a bit in the last several months. The so-called subprime sector is currently suffering from a high default rate that has prompted the industry to become more vigilant about credit scores, appraisals and income verification. Many are now requiring a healthy equity cushion, often 10%, before underwriting a loan. It can be said that the days of easy money are over.

Then there are the costs of a refinance. The no-cost type only means that the fees are included either in the interest rate or are added on top of the loan amount. It really stands for no out-of-pocket cost. That's a more accurate way to put it. Here's a money saving tip. Title insurance companies do offer a re-issue rate on their policies, which will cost less, but it has to be requested upfront.

Best practice is to contact a couple of reputable lenders to get a picture of their costs and what kind of service they provide. Lowest cost doesn't necessarily translate into expert service, I might add.