There’s a lot of hype about refinancing mortgages. You’ll hear, “Rates have never been lower!” or, “Refinance now to lock in your savings!” There are even special products like “streamlined” refinancing.

Like anything else, you need to determine if a refinance is right for you based on the specifics of your mortgage. Here are some guidelines to get you started:

The Break-Even Analysis

A refinance makes sense when you can lower your interest rate enough to pay for the closing costs before you plan to sell your home.

Basically, just estimate how long you plan on staying in your home. Then figure out how long it will take for your monthly savings to more than make up for what you would pay in the refinance closing costs. The refinance only makes sense if you’ll be in the house long enough to realize the actual savings.

Points, ARMs and Seconds

When you’re gathering quotes for a refinance, ask for a par quote or zero quote. That means the closing cost estimates will not include points or origination fees. Don’t pay these fees, which are simply pre-paid interest. The savings, if any, don’t justify the up-front expense.

If you have an Adjustable Rate Mortgage (ARM), Dave will almost always recommend you refinance into a fixed-rate mortgage. Even if you have to write a check to pay for the closing costs, it’s worth it to avoid the risk that your payments could go up when the rate adjusts.

Because ARMs cost you in the long run, they are not a mortgage option we would recommend. And they aren’t the only type of mortgage we advise against either.

A lot of homeowners with second mortgages want to roll it into their first mortgage with a refinance. Not so fast! If the balance on your second mortgage is less than half of your annual income, pay it off with the rest of your debt. If not, go ahead and refinance it with the first mortgage and pay it off after all your other debts are paid off.

Need inspiration to pay off your house faster? We have some great tips on how to pay off your mortgage early!

Going from 30 to 15

When you buy a home, if you’re not paying cash, you should get no more than a 15-year mortgage. However, if you already have a 30-year mortgage and a good rate, you don’t have to go to the expense of refinancing just to get the shorter term. Just calculate what your monthly payment would be on a 15-year term and be disciplined about paying that amount.

Try out our mortgage calculator to see what your payment will be with different interest rates and terms.

Before you agree to any mortgage the bank puts in front of you, make sure all of your questions are answered.