When is a good time to refinance

If you have an adjustable-rate mortgage (ARM) and you think that rates will rise or you want the security of knowing exactly how much your future payments will be, you may want to consider refinancing to a fixed-rate mortgage. Or you may want to get another ARM that has more favorable terms, such as a lower adjustment rate cap—a cap that limits the adjustment to no more than 2 percent above your starting rate. (There are also "lifetime caps" specifying the maximum your rate can ever be over the life of the loan.) If you've built up a good deal of equity in your home, you may want to do a "cash-out refinancing" to get money for home improvement or other major purchases. In any case, you’ll need to consider the cost of refinancing including application fees, closing costs, and even prepayment penalties against the savings you will make through lowering you interest rate and monthly payment. Finally, all these calculations need to be seen in the context of how much longer you continue to live in your present home.