Knowing that mortgages are one of the main reasons we're in the midst of this unprecedented financial crisis, you may be tempted to say, "I'm not even going to consider refinancing right now."

On the surface, that sentiment is certainly understandable, but before you dismiss the notion entirely, let's take a moment to talk about why refinancing could work to your benefit.

3 Reasons to Consider Refinancing

First, if you have an adjustable rate mortgage (ARM), we recommend you refinance to a FIXED rate NOW! More than 2 million mortgages are re-adjusting this year ... most to higher rates that people can't afford. ARMs are one of the main reasons the economy is such a mess right now, so get out as soon as you can.

Second, if you believe, as we do, that home values will continue to drop, then you should also consider refinancing NOW to make sure you qualify. The higher the value of your home, the easier it is to refinance because your loan amount will be a smaller percentage of your home's value. In this new era of extremely tight credit, this will make a potential lender very happy.

Unfortunately, one in six homeowners have homes that are worth less than the amount of their mortgage! YIKES!

And third, there are two little-known tax breaks that may be helpful to you if you refinance your home. Many people don't know about these:

1. Points charged for refinancing are deductible in the year that you refinance (as opposed to pro-rated over the life of the refinancing) if you use the proceeds to improve your home. However, they must be pro-rated if used for any other purpose, such as reducing credit card debt or switching from an ARM to a fixed-rate mortgage.
2. If you refinance a mortgage on which you were deducting pro-rated points every year, you can deduct in full any remaining amount in the year of refinancing.

How to Decide

Times are different now, and the first thing we want you to do is forget the old formula that refinancing only makes sense if you can lower your interest rate by 2% or more. Because of both increased competition for refinancing by lenders and lower rates, it still may make sense to refinance even if you recently did so.

Arriving at the right decision is pretty straightforward. Start by asking yourself these three questions:

1. How much will it cost me to refinance?
2. How much will I save each month?
3. How long do I plan to stay in the house?

Then, take those numbers and calculate whether you will earn back your costs based on how much you save each month for the amount of time that you plan to stay in the house.

For example, say that it would cost you $2400 to refinance and, by doing so, you'd save $200 per month on your mortgage. If you're sure that you'll be in the home more than 12 months ($2400 divided by $200), why not refinance?

Next: Watch Out for These Costly Surprises!

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