After this initial period, however, your ARM payments adjust with market changes in interest rates — for example, when interest rates go up, your monthly payments usually go up. With a fixed-rate mortgage, your interest rate stays the same for the entire term of the loan, making it a stable, predictable option that can be especially attractive if you're refinancing to a fixed-rate loan when interest rates are low.

Fixed-Rate to ARM. If you have a fixed-rate loan and you don't plan to stay in your house for many more years, and if initial interest rates for ARMs are lower than your current loan, you may want to switch from a fixed-rate loan to an ARM. This option could, for example, help you save money on your mortgage payments for several years while you wait to move to a new home.

ARM to ARM. You may be interested in changing from one type of ARM to another, to get a better rate and term, or you may be interested in refinancing with the same type of ARM, to get a lower interest rate. Be sure to compare your existing ARM's financial index, margin, and rate caps with current market rates before you decide to refinance to another type of ARM. It is important to understand how often your mortgage will adjust, as well as how much your payment can change with each adjustment, and over the life of the loan. In addition, be sure to see if any conversion terms apply, or if there are costs to convert to another type of mortgage from your current one.

Tapping into Equity. Since you first started making monthly mortgage payments, part of your payment was used to pay principal — helping you build equity in your home — while the rest went toward interest, taxes, and insurance. Drawing on the equity in your home, often referred to as a "cash-out" refinance, provides an easy way to tap this source of savings and use it for other purposes, such as home improvements or a child's education. In addition, because mortgage interest usually is tax-deductible, you also can use a cash-out refinancing to pay off debts that have non-deductible interest costs. Consult a tax advisor for additional details about this option.

No matter what your refinancing scenario, keep in mind that you can always take advantage of our Refinance Calculator and other tools when you're trying to determine if now is a good time to refinance.