There are many benefits to refinancing your home -- the biggest one being a cut in your monthly payments. It is important, however, to know and understand when the best time is for you to refinance.

There are many benefits to refinancing your home -- the biggest one being a cut in your monthly payments. It is important, however, to know and understand when the best time is for you to refinance.

Refinancing, simply put, is getting a new loan to pay off an existing loan on the same house. The new loan may have lower interest rates or may be larger than the debt owed on your current loan. Refinancing is most often done when interest rates drop, but you need to analyze your personal situation before you make your final decision.

Yes, interest rates may play a big factor in your decision, but there are situations where interest rates may not matter. For example, if you currently have a loan that requires that you carry mortgage insurance, and if you've built up enough equity to drop that insurance through financing, then it does not matter if the interest rates have remained constant or even risen slightly, because refinancing may save you money.

Adjustable-rate mortgage (ARM) or a safe fixed rate? In order to determine which mortgage type is best for you, you'll need to analyze what you currently have and see what else is out there. If you have a fixed-rate mortgage, comparing rates will be easy and you can be pretty certain whether refinancing makes sense. If you have an adjustable rate mortgage and if rates are rising, your payments will also be increasing. If that's the case, you need to look deeper and take into consideration how much rates will rise and how much more you will be paying per month.

There are other reasons why people choose to refinance their home besides a drop in mortgage rates. Needing extra money and looking to stretch out your monthly payments is one. Another reason may be that you find a better deal with a new company. For example, if you've seen an increase in your credit score due to paying off a large debt, a new lender may be able to give you a better deal than you may think.

If, after looking at the market and analyzing your personal situation, you have decided to refinance your home, there are a few mistakes that are often made that you should work to avoid. Not choosing the best refinancing loan is a big one. There are different loans out there and working with a qualified lender will help you to make the decision that is best for you. Not conducting a break-even analysis is another mistake. A break-even analysis will tell you if you are ready to refinance -- if you divide the total cost of the loan by the monthly savings, you will get the number of months that you will have to stay in that home to break even on your refinancing costs. Again, consulting a qualified lender will help you.

If you are considering refinancing your home, be sure to look at all of the factors and work with a lender you trust. He or she can advise you to make the decision that is best for you and your family.

Harley E. Rouda Jr. is the CEO of Real Living HER, the No. 1 real estate firm in central Ohio.

Harley E.

Rouda Jr.