PersonalFinance: Should you refinance?

--Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.--

By Linda Stern

WASHINGTON (Reuters) - Mortgage rates have been tantalizingly low and, for many, the decision to refinance has been a no-brainer. The year-end dip in mortgage rates to historic lows prompted a flurry of applications from homeowners wanting to cash in on a 5 percent fixed rate for 30 years.

That makes a lot of sense if you're struggling with a high- rate loan or a monthly payment you can't make. But for others, who may already have a good low-rate loan and have paid off a substantial amount of it, the decision isn't that easy.

Refinancing into a long-term loan can extend the years in which you make payments and that can increase the amount you ultimately pay for the loan, even if the rate is lower.

Even if you decide to refinance, you may not be sure of whether to go fixed or variable, long or short. Should you roll your other debts into your home mortgage?

Here's how to decide whether to refinance, and how to go about it to get the best possible loan for your situation.

-- Use an online calculator. It will give you a good idea of how much you'll spend over the life of the loan, and whether the refi makes sense in a strictly dollars and cents way. Check out the calculators at bankrate.com and hsh.com.

-- Get several quotes, and beware of extra costs and traps. The points you may be asked to pay to secure your loan are just one cost of a refinancing. You'll also be tapped for a home appraisal and miscellaneous other lender fees. Ask your lender for a good faith estimate of all closing costs. Avoid getting any loan that carries prepayment penalties: these are illegal in some, but not all states and situations. Compare web-based lenders and a local lender or two.