Cash in on the Refinancing Boom

At the beginning of January 2007, the number of mortgage refinance applications spiked, thanks to a sudden drop in mortgage interest rates. But interestingly, when interest rates rise, many homeowners also refinance while there's still time to lock in low rates. Whichever direction mortgage rates move, consumer activity seems to accelerate. The reason: people want to capture available discounts while they last.

These questions will help you determine if a refinance is right for you:

How long will you keep the loan?

If you plan to hold on to the loan for several years, shop for a refinance rate that saves you money both now and into the future. Fixed rate loans are especially popular now, because their rates are still near historic lows and will stay predictable, even during times of mortgage market uncertainty.

Do you need to raise cash?

A cash-out refinance can put money in your pocket at rates that are lower than typical consumer loans. While the interest paid on consumer loans is not tax deductible, interest -as well as points paid at closing, in most cases-is deductible, and can provide further financial justification for refinancing.

Do you have untapped equity?

If you have equity in your home that could be used for a higher return elsewhere, use a mortgage refinance to take it out and put it where it really counts. For example, some financial advisors suggest using home equity loans to tap money that can then be invested in high-yield stocks. This can be a clever tactic for baby boomers needing aggressive wealth-building strategies prior to a retirement that looms just around the corner.

Is your current loan too expensive?

A refinance to a conventional loan is the ticket if you have an interest-only loan and want to avoid negative amortization. If you have an ARM that has adjusted-or is about to-and you want to avoid its higher monthly payments, you can refinance into a more comfortable fixed-rate product.

Instead of riding the stressful minute-to-minute mortgage rate roller coaster, crunch the numbers calmly and see if-and how-mortgage refinancing might be able to save you money in the New Year and beyond.