Is the Clock Ticking on Low Mortgage Rates?

Janet Fisher's fixed-rate mortgage is a manageable 6.375%. But she knows she could do better. The homeowner from Oceanside, New York, is shopping rates in anticipation of refinancing her 30-year loan. "It feels like the right time to pull the trigger," Fisher says.

With rates near historic lows, hovering around 5%, Fisher is in a good position to see a healthy savings on her mortgage payments and a quick recoup of the closing costs on the refinancing. Like many homeowners, she is paying attention to forecasters who say the window of opportunity could be closing, as rates seem poised to creep higher in the months ahead.

"The indexes used to calculate payments for mortgages adjusting today are all artificially low, based on the actions of the Federal Reserve," says Jim Sahnger, vice president of Palm Beach Financial Network in Jupiter, Florida. "When the programs end over the next few months, all rates will rise -- and in some cases, their increase could be dramatic. If you'll have the need to refinance anytime between now and over the next 18 to 24 months, I would consider doing so now."

Daniel Penrod, senior industry analyst for the California Credit Union League in Ontario, California, believes that once rates start moving, "they're going to trickle back up to the 6's and closer to 7%."

How long do you plan on your staying in your home? How many years are left on your mortgage? What's your current interest rate and equity level? Those are the key points bankers need to know from clients, says Jason Bonarrigo, senior mortgage banker at Wells Fargo Home Mortgage in Boston.

In other words, the time to lock in a low rate is now -- only if the circumstances are right. For starters, be sure your credit score is in check. Resolve any errors to earn the best possible mortgage rate. The difference of just a few percentage points in your credit score can translate to hundreds, and sometimes thousands, of dollars a year.

If you're ready to take the next step, here's what you need to know on each type of loan.

Fixed-Rate Mortgage

Why now: If you can lock in at 5% or 5.5%, especially on a 30-year term, you'll be "in an enviable position" down the road, says Penrod.

Do refinance if you can snag a rate at least a half-percentage point lower than what you've got now.

Do refinance if your credit score has improved since you applied for your original mortgage, Penrod says.

Don't refinance if your home's value has dropped and you have less than 20% equity. You could wind up paying private mortgage insurance.

Interest-Only Mortgage

Why now: Once the interest-only period ends, the principal is amortized over a shorter period of time, and payments can increase significantly.

Do refinance to a fixed-rate to reduce the principal balance, if you can afford higher payments.

Do refinance if you want the stability of a set monthly payment.

Don't refinance if you anticipate moving in the next few years.

Hybrid Mortgage

Why now: When the fixed-rate portion adjusts to an adjustable-rate mortgage, your interest rate may spike.

Do refinance if you expect to remain in your home well beyond the point when your mortgage is scheduled to reset.

Do refinance if you think you'll be unable to afford higher payments in the coming years.

Don't refinance if your savings would not offset closing fees and points.

Adjustable-Rate Mortgage

Why now: To avoid any potential sticker shock when your rate next adjusts.

Do refinance if home prices are still dropping. "If values decline in your area, you may be unable to [refinance] in the future," says Sahnger.

Do refinance to a fixed rate if you might not be able to afford a rate that could be 3% to 4% or higher in coming years, Sahnger says.

Don't refinance if you expect to move or pay off your home in the next few years.

To get a sense of what refinancing will cost -- and what (if anything) you'll save -- search online for a refinance calculator, and plug in your numbers. Then talk to a mortgage professional. Most offer free consultations. Homeowner Janet Fisher figures that her refi could save her about $150 a month. "It'll be a relief to have that extra money in my pocket."