Refinance now? probably.

If you can't justify a refinance, don't do it. On the other hand, you might want to refinance.

In many cases, refinancing is quick, painless and reasonable, but there are reasons to forego refinancing. Indeed, those with second mortgages, a lot of debt or trouble with bills may find they'd pay more by refinancing than by sticking with the loan they already have.

Do nothing?
One of the first things to consider when refinancing is, is there enough equity in the property? A second thing would be the borrowers own personal qualifications, and that goes back to standard credit underwriting. It's important to maintain a positive credit history and a good relationship between debt level and income level.

Good to go
For some, refinancing is a sure thing. Borrowers with consistent on-time payments and relatively small debt can knock as much as hundreds of dollars off their monthly payments. Over time, that will mean thousands less spent on interest, and possibly a mortgage paid off sooner.

But refinancing isn't for everybody. Many people today have taken out second liens in the form of home equity loans and lines of credit. Others have taken advantage of loans to borrow up to 125 percent of their home value. These and other factors will make it tough for people who go back, hat in hand, to the mortgage company to ask for a refinance.

How it works
Let's consider how a refinance loan works. In most cases, lenders sell these products to Fannie Mae and Freddie Mac, which repackage them as securities for sale to investors. These agencies provide a large part of the money for the lending industry, and they have relatively strict guidelines for the loans they buy. With a plain vanilla "rate and term" refinance, in which someone has only a first mortgage and wants nothing more than to change terms or rate, lenders can rework the loan with minimal effort, and possibly even a streamlined refinance.

The hard part
However, it's more difficult for someone who has obtained a home equity loan within the past 12 months to refinance their first mortgage. Lenders restrict overall debt, including the first mortgage and the second, to 75 percent of the home's value during this period.

Given that rates are low, many borrowers may want to eliminate their home equity loans entirely by rolling those debts into larger first mortgages. However, to do that, they must have had their home equity loans for at least 12 months and their total mortgage debt levels can't exceed 90 percent of the home's value.

Keep an eye on the PMI penalty. Many who combine loans end up back where they started with private mortgage insurance -- an extra payment they must make when they borrow more than 80 percent of a home's value. Here's a good example: someone wants to combine a $15,000 second mortgage with $75,000 worth of PMI-free first mortgage debt. Together, the two loans raise the overall debt load on a $100,000 home to $90,000 -- above the 80 percent level.

Basic standards still apply
Refinancing customers face the same credit and debt-to-income standards they did when applying for the original loan. This can spell trouble if a once-stellar customer has made some late payments or allowed the credit card balance to skyrocket. Lenders also typically compare the housing debt and overall debt to an applicant's gross income when deciding whether to make a loan. If your income has fallen, you may not get a low-interest refinancing -- or yet none at all.

Research
You'll have to look at your existing payment, figure out the costs of refinancing, and see how long it would take to recoup the charges.

One of the best ways to help determine a refinance is our Refinance Calculator. You can see how much refinancing will save in interest, or compute how long it will take to break even on the cost.

Refinance to a lower rate
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