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As interest rates remain at historic lows, many homeowners wonder if it’s time to refinance. While you probably find the idea of saving hundreds or thousands of dollars per year very appealing, closely analyze your individual financial picture and life goals before signing on the dotted line and review these Refinancing 101 tips.

First, understand that refinancing isn’t free. It can actually cost several thousand dollars, although many lenders lump the cost of refinancing into the new loan. Lenders accomplish this by notching up the interest rate a small amount or by increasing the size of the loan itself. If you plan to sell your home within the next year or two, what you save every month may not exceed the cost of refinancing – so exercise caution.

Assuming you’re not planning to sell your real estate within the next year or two, evaluate your equity position. You may be able to refinance to a new 15-year loan at a significantly reduced rate and pay your house off much faster. You can also ask your lender to simply reduce your rate on your existing loan and maintain the same number of remaining payments. Be wary of refinancing to a new 30-year loan if your current loan is several years old.

Some homeowners need cash for home repairs, college tuition or other expenses. In years past, these “cash out” loans were quite common; however, unless you have at least 15 or 20 percent equity in your home, you may not qualify. Frequently these homeowners take cash out loans, restart the clock for 15 or 30 years and get lower total monthly payments.

Finally, contact your lender if you are struggling to make payments. Your lender may tailor an approach that meets all of your financial goals. While customers with safe financial profiles accomplish this easily, other borrowers may not – but until you reach out, you won’t ever know.

Ask a local Homes & Land Realty Expert any questions you have about the home buying process or browse our complete list of homes for sale.