When the economy slows down and interest rates are low, it’s the perfect time to for mortgage refinancing. A mortgage refinance can lower your monthly payments, the interest on the loan and, as a result, can save you hundreds of thousands of dollars over the life of the loan.

When the interest rates fall, the first thing that should be considered is refinancing your house. Why is that? Because the home loan is the single most important factor to your credit score, budget and future credit applications. A home loan, if paid in a timely manner, can raise your credit score high enough to qualify for the lowest interest on all of your loans. Conversely, a home loan that is paid late or goes into collections becomes one of the most detrimental factors on your credit.

If you have good credit and the interest rates are lower than you’ve locked into, you might be considering refinancing your mortgage. Before you do, there are some factors to consider. Are there any fees for early payment on your current loan? Is the interest rate lower if you lock it now, than if you take a variable rate for a couple of years? What is the current equity in your house and how can it help you when you refinance?

If you’re in your first year of a mortgage, it’s very rare that refinancing would be helpful unless you’re willing to take the penalty. Often times a bank will waive penalties if you’re refinancing through them. Another important factor is how much in penalties are you going to take? If you’re going to save more money over a period of years, then refinancing is a good idea. The lifetime of a loan is where you’ll see the savings on refinancing so it’s important to figure out the numbers before you apply for your loans.

If the interest rates are low, it’s crucial to decide if you ‘ll lock in a rate for a 20 year mortgage or save a few thousand dollars by going with the lowest interest in a variable rate loan. Variable rate loans are the lowest interest rates, but the risks are not locking in a rate before the rates rise higher than the original loan.

Lastly, you’ll want to consider refinancing if the equity in your house is more than any penalty on early payment. The equity is the amount the house is worth at the time of refinancing minus the original mortgage. Always remember that a house appreciates in value from the moment you move in. It is, however, best to live in the house one year before equity builds to any great amount.

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