People also refinance to convert their adjustable loan to a fixed loan. The main reason for doing this is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.

A third reason why homeowners refinance is to consolidate debts and replace high-rate loans with a low-rate mortgage. The loans being consolidated may include second mortgages, credit lines, student loans, credit cards, etc. In many cases, debt consolidation results in tax savings, since consumer loans are not tax deductible, while a mortgage loan is usually tax deductible.

The answer to the question, "Should I refinance?" is a complex one, since every situation is different and no two homeowners are in the exact same situation. The conventional wisdom of refinancing only when you can save two percent on your rate is problematic. If you are refinancing to lower your monthly payments, the following calculation is more appropriate compared to the two-percent rule:

1. Calculate the total cost of the refinance -- example: $2,000
2. Calculate the monthly savings -- example: $100/month
3. Divide the result in 1 by the result in 2 -- in this case, 2000/100 = 20 months. This shows the break-even time period. If you plan to live in the home for longer than this period of time, it likely makes sense to refinance.

Sometimes, you do not have a choice -- you are forced to refinance. This happens when you have a loan with a balloon payment and no conversion option. In this case, it is best to refinance a few months before the balloon payment is due.

Whatever you're considering, consulting with a seasoned mortgage professional can often save you time and money. Make a few phone calls, check out a few websites, crunch on a few calculators, and spend some time to understand your options.

Brad Phillips is a Certified Mortgage and Divorce Planning Specialist with Mortgage Master Inc. in Fayetteville, Georgia. He can be reached at (770) 355-8351 or (800) 205-9424. View his Divorce Magazine profile.