Refinancing Do's and Don'ts

For Ernie and Laura Anastos of Arlington, Va., 2010's historically low interest rates couldn't have come at a better time. After careful analysis, the couple ditched their 7-year-old balloon mortgage with its 5.375 percent interest rate in favor of a 4.75 percent, 20-year fixed rate.

Their monthly payments have risen slightly, but thanks to mortgage refinancing, they shaved three years off their mortgage and could save more than $80,000 over the course of the loan.

"It made a lot of sense. Because it was a balloon loan, we knew we'd have to refinance at the 10-year-mark, and interest rates are low now," Laura Anastos says.

The Mortgage Banker's Association, an organization that monitors and represents real estate financial institutions, predicted in late 2009 that loan applications for mortgage refinancing would tumble by more than 52 percent in the following year. This was based on an assumption that financial institutions would raise rates to ward off inflation.

But rates have remained low, largely because of global financial instability, and current homeowners are wondering whether they can take advantage of the situation.

Average rates on a 30-year-fixed loan in mid-year 2010 were 5.0 percent, according to mortgage giant Freddie Mac. This is down from the 2009 average of 5.04 percent for a 30-year fixed loan.

To get rock-bottom rates, however, homeowners must be eligible. And that means they must do the math, make sure their financial portfolio is primed for review and shop around for the best rates.

If you're considering a mortgage refinancing, here are some tips to help you decide whether now is the right time to refinance your home: