Before you plunge into a refinance, ask yourself these questions:

1. Is my payment going to be lowered by a worthwhile amount?
   

2. What will be my total closing costs? After paying points (no points is also an option), after paying processing fee, title insurance, escrow - the stuff adds up. Take that total cost and divide by the savings you'd get by refinancing. For example, if the total cost was $3600 and the reduction in your monthly house payment was $150 per month, it would take only 2 years (3600 divided by $150 = 24 months) to recoup the cost. Beyond the second year, you'll be saving plenty. Conclusion? If you plan on selling within 2 years, using this example, it might not be worthwhile. UNLESS you may opt for a no points loan whereby you encounter little cost. Or consider applying for a no points and no cost loan, whereby you pay nothing in costs. Recouping your closing costs with no points will take, using the example above, much less than two years. Using the no points and no cost option will cost you nothing. Then, all you have to determine is whether the new rate is lower than your present rate. If yes, jump in, take a number, stand in line, and refinance!
   

3. Pre-payment penalty. Your present lender may have imposed one. Some lenders penalize you for paying the loan early (typically, in the first 3 years). If you're in that boat, you may want to wait until the pre-payment penalty term is up. Unless of course, the new lower rate, even when accounting for the pre-payment penalty and the closing costs, is still far lower than your present payment.
   

4. Adjustable mortgage. You took out one of these because you weren't planning on staying long in your home, but you did. Or, years ago, the adjustable mortgage, with its initial lower payment, got you approved a little easier. However, now the index (the price of money your lender buys at wholesale) plus the margin (the profit the lender adds to the index to sell to you at retail) has now come to haunt you. In other words, your adjustable mortgage payment has become too expensive and unpredictable. Refinancing into a fixed rate may be the right choice for you.
   

5. Do you have a balloon coming up? A few years ago, you took out a 5-year or a 7-year loan that's become due. In other words, your lender wants his money back. Now! To avoid any last minute stress, and being pressed against the wall, shop for a new loan at least three months before the lender comes knocking.
   

6. Cash. That four-letter word we can't seem to get enough of. Just when you thought you took out the last home loan in your lifetime, you find that you need a new kitchen, a new car, and your kids are reminding you of the college fund you had promised them. You could tap into your credit cards, borrow against your 401K, or take out a 2nd on your home. However, if you still have equity, refinancing the old loan with the new cash, all rolled into one, is the least costly solution.

To lower your payment, save on closing costs, or seek extra cash: