With all the talk of interest rates at historic lows, and rumblings about inflation soon to rear its ugly head, the idea of refinancing your mortgage is quite tempting. But is it truly a good idea for your mortgage? Here are some questions to ask yourself.

How’s My Credit? If you have a credit score in the basement, it’s unlikely you’re going to get a good refinancing deal, and it probably won’t be worth your while. Also, beware chasing down a percentage point or two at every opportunity; too many refinances can lower your credit score, so if you’re refinancing for the umpteenth time, reconsider.

Do I Have Enough Equity? If you haven’t been in your home very long, and haven’t built up enough equity, you may not be eligible for a refinance loan. Additionally, if the value of your home has declined – and it probably has in the last few years – the amount of the refinance loan, based on the value of your home, may not even by enough to pay off the original mortgage.

Am I Almost Done? If you have only a few years left in your mortgage loan, why would you want to take out a new loan instead of being free of debt?

What Am I Trying to Do? Ask yourself why you’re refinancing. If your answer is something like, “Because some guy on TV said now is a great time,” that’s not a good enough reason. Also beware refinancing in order to “cash out” extra equity in your home (if you’re lucky to have any) – many homeowners in the current recession were burned by treating their houses like bank accounts.

The most likely, and best, reason to refinance is to lower the interest rate on your fixed mortgage. The “2% rule” states that the interest rate on the refinance should be at least 2 percentage points lower than your current interest rate in order for the refinance to be worth your while. This is just one “rule of thumb,” however; even a small reduction in the interest rate can save you thousands over the life of the loan.

Another good idea could be to move from an adjustable rate mortgage (ARM) to a fixed rate loan that doesn’t carry the threat of fluctuating payments.

You might want to lengthen the term of your mortgage in order to reduce the payments. If the reduction in interest is favorable enough, or if your budget can bear it, shortening the term of your mortgage to get it paid off sooner is also a laudable goal. Perhaps you are hoping to consolidate many debts into one; one big advantage of this is that the interest on your new refinance loan may be tax-deductible. One downside, however, is that if you are rolling your credit card debts into a new mortgage, it’s tempting to spend yourself back into debt.

Am I Here to Stay? The idea of refinancing is to lower your costs over the life of the mortgage. A refinancing has closing costs just like the original mortgage, however. How many payments will it take before your savings cover the extra costs? Figure up the reduction in your monthly payment, and divide your total closing costs by that reduction. If you don’t think you’ll be in the house that long, the refinancing won’t make sense.

Conclusion. Even though many media reports depict refinancing as a “no-brainer,” it isn’t necessarily the right choice. Consider what a refinancing will do for you before going ahead.

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