Right now may be a great time to refinance a home mortgage. Residential mortgage rates are currently at historical lows. CNN Money and Finance, reported on September 11, 2008, that the interest rate on a 30 year fixed rate mortgage had dipped to 5.93%. Economists and financial analysts are indicating that rates could drop even lower yet.

In it's simplest form, the decision to refinance a home mortgage is subject to one basic premise: the consumer needs to decide if refinancing presents adequate enough financial advantage to make the proposition worthwhile. Easy and accurate mortgage calculators can help the consumer to compare the cost of maintaining their current mortgage, against the costs of obtaining and maintaining a new one. To do this, the consumer should have specific numbers regarding costs and fees, from banks they may wish to do business with. By having solid estimated numbers from potential lenders, the consumer may prepare mortgage budget projections and compare those projections to their current mortgage budget to determine how much they might reduce their monthly mortgage expenses by refinancing.

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria,

With the current low interest rates, is now a good time to refinance a mortgage? If I have a refinance in the works, can I negotiate a new rate if they are cut again?

John

Ken and Daria Dolan can help you negotiate a smart mortgage and save hundreds on your payments! Learn more at Dolans.com.

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In the past few weeks, we've gotten quite a few emails from homeowners wondering if they should take advantage of these historically low interest rates and refinance. A general rule of thumb is that you should refinance if you can lock into a rate approximately 2% below your current rate. Otherwise, the costs and hassles of refinancing outweigh the benefits.

When you refinance, you have to pay many of the same costs you paid when you purchased your home in the first place: attorney's fees, appraisal fees, application fees, processing fees (whatever that is), etc. But many of these costs scale well -- the costs refinancing a $3 million loan may not be substantially higher than refinancing a $50 thousand loan. So a big part of whether refinancing makes sense is the size of your loan -- if your loan is small, you will need a big difference between your current interest rate and the new one.

Use this handy-dandy refinancing calculator from BankRate to get an idea about whether refinancing makes sense for you.

With the Federal Reserve aggressively cutting interest rates, you may be wondering if it's time to refinance your current mortgage. The answer is a simple yes. Back in January I locked in a 4.5% 15-year fixed rate mortgage the day after the Fed rate cut. Rates went back up to 5.5% within a week.

Generally you will benefit from a refinance as long as your interest rate will go down by at least 1% and the new loan does not require you to pay points in order to get that lowered rate. In most cases, a refinance is only worth it if you plan to stay in the home for more than three years. If you think you'll be selling the home before that, the costs of a refinance probably won't be recovered unless you can lower your rate by 2% or more.

With interest rates so low, the only kind of mortgage you should consider today is a traditional fixed-rate mortgage. Lock in those low rates. Don't play games with variable rates. If you can't afford the payment on a 30-year fixed-rate, consider a 40- or 50-year mortgage rather than a variable rate mortgage. You can always make extra principal payments when you can afford them to shorten the life of the loan in the future. But, of course, be sure your loan doesn't have any pre-payment penalties. Never accept a mortgage loan with pre-payment penalties. Ask that question when you're shopping for a loan and ask it again before you sign the papers to close the loan. Make sure you see in writing that there are no pre-payment penalties before you close the loan.

Check your credit report and score. Before applying for any new major loan it's a good idea to check your credit report and credit score. If you find any erroneous information on your credit report, clean it up before you start the application process. Cleaning things up as part of the underwriting process will only delay the loan process and could even kill the loan. To get the best rates, your credit score must be 730 or higher. People with this credit score can often get rates below the national average rate you'll see quoted around the Internet. If your score is below 675, you will pay significantly higher rates than you are seeing quoted. People with scores between 620 and 674 generally pay 1.5% to 1.9% higher rates for a mortgage. People with scores between 560 and 619 will find their rates are about 3.8% higher than the national average, if they can find a lender at all in today's tight mortgage market. Below that you'll probably find it almost impossible to get a refinance in today's market. You can use the round robin debt startegy to improve your score quickly.

While a recession creates many economic woes, those who are in the market for a loan (mortgage or otherwise) can often find value during these times. Here are a few suggestions for taking advantage of opportunities and hedging your bets.

Rates are low. In an effort to calm recession fears and boost the economy, interest rates have been lowered again. That's good news for borrowers, who can find better bargains than in the recent past.

Refinance your house. With lower rates, you may have an opportunity to refinance your house and save some money. If you currently have an adjustable rate mortgage that resets in the next year or two, you might consider refinancing early to lock in a good rate. Waiting another year or two to see where rates end up might not be the smartest move if you qualify for a competitive rate now.

Use home equity to help. If you were planning on borrowing money to attend school, start a business, or to fund some other long-term worthwhile venture, you may consider tapping into your home equity. While it might be harder to get an ordinary personal loan, it is probably a little easier to dip into home equity. Please do so responsibly though, as you don't want to lose your house because of a failed business venture.