When mortgage rates drop many homeowners wonder if now is a good time to refinance their home mortgage loan. To answer this question we must understand some basics about home refinance programs, points, closing fees, your current mortgage and how long you plan to keep the property.

Is your goal to lower your monthly payment? Consolidate debts? Get cash out for large purchases? Change your interest deduction expense for your taxes?

Narrow down your primary purpose for getting the loan. Ask a mortgage professional to provide a couple of refinancing scenarios for you, showing how certain loan terms, monthly payment and your total interest expense will change and impact your goals. After looking at these scenarios, it will be clear whether or not you should spend the money to refinance.

Q. When should I refinance my current mortgage loan? A. It is often said that you should refinance when mortgage rates are 1% lower than the rate you currently have on your loan. Refinancing may be a viable option even if the interest rate is less than 1%. For example, the monthly payment (excluding taxes & insurance) would be about $770 on a $100,000 loan at 8.5%. If the rate were lowered to 7.5%, the monthly payment would be about $700, a savings of $70.

The significance of such savings in any scenario will depend on your income, budget, loan amount and the change in interest rate. Your trusted lender or agent can help calculate the different scenarios.

Q. I plan on moving soon. Should I refinance now?

A. It's important to remember that most lenders will charge a fee to refinance a loan. If you plan to stay in the property for less than a couple of years, your monthly savings may not accumulate to the extent where you can recoup the cost of a loan. Let's say a lender charged $1,000 to refinance your loan, but it resulted in a monthly savings of $50. It would take 20 months (1,000 divided 50) to recoup the initial cost before you start to realize a savings.

Questions You Need To Ask A Lender

Before accepting any loan offer take the time to do research on the company you're dealing with. Ask the lender for a list of recent satisfied customers. Find out how long they have been in business. Are they affiliated with the better business bureau? Are they a part of the Equal Housing Opportunity lending network or Mortgage Bankers Association? What is their stance on predatory lending practices? Ask the lender why they wish to do business with you.

Other important questions to ask your lender are as follows:

1. What is the interest rate on this mortgage?

2. How many discount and origination points will I have to pay?

3. What are my closing costs, and will you provide a good faith estimate of these costs up front?

4. When can I lock in the interest rate and what will it cost me to do so?

5. Is there a prepayment penalty on this loan?

6. What is the minimum down payment required for this loan?

7. What are the qualifying guidelines for this loan?

8. What documents will I have to provide?

9. How long will it take to process my loan application?

10. What might delay approval of my loan?

When mortgage rates drop to attractive levels the difference between getting a good deal on a loan involves asking the right questions and getting the right answers as this will put you in position to meet your financial goals when determining whether to refinance your home mortgage.

Mark Askew is founder of the Mortgage Loan Search Financial Network at http://www.bcpl.net/~ibcnet