There are basically four groups of people that are looking to refinance: those that want to reduce their monthly payments, those that want to consolidate debt, those that want to use the built-up equity in their homes and those that want to get out of their current mortgage. However, it doesn’t always make sense to refinance. Here are some guidelines.

There are definitely expense involved in refinancing so you should weigh the advantages and disadvantages of refinancing. If you are thinking of refinancing to pay less interest or to lower a monthly payment you won’t see any potential savings immediately because you will have to pay lender fees and closing costs for your new mortgage. If you plan on moving within 5 years, you most likely will not recoup these costs and so should probably steer clear of refinancing.

Also consider if you have a prepayment penalty on your current mortgage. If you do have one you’ll have to pay it once you refinance. This can be particularly expensive as many lenders charge up to six months of interest on 85% of your original loan balance for this penalty.

Finally, calculate how much it will cost you to refinance. Remember to include application fees, lender fees, title insurance, legal expenses and closing costs when determining how much it will cost you to refinance. Many people believe that if a new interest rate isn’t at least 1.5% lower than your current rate, refinancing isn’t worth it.