Is now the right time to refinance?

We all know by now that mortgage rates have been at record lows for months.

But those lows keep getting lower. In fact, the cost of a home loan is much cheaper than it was even last fall.

Consider that six months ago, the average 30-year, fixed-rate mortgage was a quarter of a percentage point more expensive than it is today.

If you were on the fence last year about whether you should refinance (or refinance for a second or third time), now might be the time to hop off.

These 6 smart moves can help you decide whether refinancing is right for you and help you find the best possible deal for your home.

Smart move 1. Refinance if you find a rate at least a percentage point lower than you're paying now.

This is still a good rule of thumb to follow when deciding whether you've found a worthwhile deal:

Reduce your interest rate by one percentage point, and you'll reduce your monthly payments by $65 a month for every $100,000 you borrow.

Our refinancing calculator can help you evaluate any offer more precisely.

It will calculate exactly how much your payment will decrease and how long it will take to recoup any fees and closing costs. A year or less is ideal. Two years or more is too long and indicates the fees are too high for the interest rate you're being offered.

Smart move 2. Find the best rate on a 30-year mortgage.

With interest rates this low, 95% of homeowners refinancing now are locking in the best deal they can find on a traditional fixed-rate mortgage.

That's totally understandable. Finance a home today, and you'll never have to worry about your mortgage again.

A good place to start is our extensive database of mortgage rates, which allows you to compare loans being offered by dozens of lenders in your area.

The best deal for most borrowers is the one that offers the lowest interest rate, with no points, loan origination fees of $2,000 or less and closing costs between 3% and 6% of the loan's value.

Smart move 3. Examine the benefits of an adjustable-rate mortgage.

If you're looking for an even cheaper monthly mortgage payment -- and you're not planning to stay in your home for very long -- an adjustable-rate mortgage might be right for you.

Of course, we're not talking about one of these exotic home loans that blew up, helping to fuel the housing collapse.

We're talking home loans that lock the rate for at least five years and reset once a year after that.

The average introductory rate on a five-year, adjustable-rate mortgage is about a percentage point less than a 30-year, fixed rate loan.

If you know you’ll own your home for fewer than five to seven years, a traditional ARM might make sense. Our ARM or fixed-rate calculator can help you compare different types of loans.

Smart move 4. Consider reducing the term of your mortgage.

If making your current monthly mortgage payment isn't a problem and you'd like to save a ton of money on interest charges over the life of the loan, you might consider refinancing into a shorter-term loan.

The rates on 15-year, fixed-rate mortgages are about three-quarters of a percentage point lower than on 30-year, fixed-rate loans.

If you can afford a higher monthly payment, you can greatly reduce the number of mortgage payments you'll have to pay and save a fortune in interest.

For example, refinancing into a 15-year loan at 3.25% rather than a 30-year loan at 4.00%, your monthly payments will be $226 a month more for every $100,000 you borrow.

But your total interest payments over the first 10 years of the loan will be more than $12,000 less, and you'll be two-thirds of the way toward paying off your mortgage with the 15-year loan.

Our 15-year vs. 30-year mortgage calculator can help you figure out the potential savings for the deals you find.

Smart move 5. Lock in your rate as soon as possible.

There's no reason to think mortgages are going to get more expensive anytime soon.

But interest rates change daily, and lenders won't guarantee the deal you've been offered until it is formally locked in.

We've seen a few lenders offering to lock in rates as soon as an application is accepted and push loans through to closing in as little as 10 days or two weeks.

Most mortgages still take a couple of months to close, and interest rates are not assured until 30 to 45 days before closing.

As that day approaches, you need to check around one last time to make sure your lender is still offering the best -- or close to the best -- deal.

More often than not, that will be the case.

If you're suddenly being quoted a significantly higher interest rate or one that's no longer competitive with what other lenders are advertising, you need to ask why.

If your loan officer doesn't have a good answer, you need to reapply somewhere else.

Although switching lenders at such a late date is a hassle, one of the major reasons you're refinancing is to get the lowest possible interest rate.

You shouldn't compromise on that.

Smart move 6. Not enough equity? You still have options.

Many lenders won't refinance your mortgage unless you have 20% equity in your home. (If they do offer you a loan, it will come with private mortgage insurance.)

That can be a tough hurdle to clear if you live in an area where property values have fallen 20% or more -- and may still be declining this year.

Indeed, even if you had enough equity to refinance a couple of years ago, you might not have enough to qualify now.

(To calculate your percentage, subtract the balance on your existing mortgage, plus any home equity loan debt you may have, from your home's current value and divide the difference by the current value.)

Most homeowners are overcoming this problem by doing a cash-in refinancing.

This is where you use $20,000 or $30,000 of your savings to pay off a portion of your existing mortgage so that you need to borrow less with your new home loan.

With a smaller mortgage, you'll enjoy smaller monthly payments, too.

You can also overcome an equity problem by applying through one of the federal government's big loan programs.

If you can qualify for an FHA loan, you'll need as little as 2.25% equity in your home to close on a new mortgage.

Vets who can obtain VA loans need no equity at all to refinance.

It remains to be seen if the new version of the Home Affordable Refinancing Program (HARP) will be any less of a failure than the original program, but this is an option for underwater homeowners to pursue.