Is now the right time to refinance?

Bills shaped like house

For most homeowners, it's still a good time to refinance.

While interest rates have mostly risen, albeit only slightly, from the record lows reached a few years ago, mortgages remain incredibly cheap.

Borrowers will even pay less than those who took out new loans last spring. That's especially so if you're in the market for a jumbo loan — rates on jumbos are at a record low.

If you can shave at least 1 percentage point from your current mortgage rate, then refinancing probably makes sense.

Let's say you have a 30-year fixed-rate home loan that's charging 5.6%.

Refinance at current interest rates, and you'll reduce your monthly payments by about $111 a month for every $100,000 you borrow.

The best deal for most borrowers is the one that offers the lowest interest rate, with no points and lender fees of $2,000 or less.

National Average Mortgage Rates

Source: weekly survey from May 16, 2016

Type of loan Current average Record-low average Established
30-year fixed rate 3.75% 3.50% Dec. 5, 2012
15-year fixed rate 2.99% 2.75% May 1, 2013
30-year fixed jumbo 3.77% 3.68% Feb. 11, 2016
5/1 ARM 3.11% 2.63% May 1, 2013

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

It will calculate how much your monthly payment will decrease and how long it will take to recoup any fees and closing costs.

Refinance with a conventional loan

Property values have increased in most parts of the country, boosting the amount of equity homeowners hold in their homes.

The more equity you have — the difference between the balance on your current mortgage and your home's current market value — the easier it is to refinance.

Borrowers with good credit and 20% equity can qualify for a conventional loan, which is the most common, and usually the cheapest, way to go for most borrowers.

The average cost of a 30-year conventional loan was 4.19% in February, according to Ellie Mae, a California-based mortgage technology firm whose software is used by many lenders.

Borrowers who successfully refinanced their homes had an average FICO credit score of 731 and 31% equity.

Refinance with an FHA loan

You can refinance with an FHA loan even if you have little or no equity in your home, a much lower credit score or higher debt than lenders usually accept.

The Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development, doesn't actually make loans.

It guarantees that private lenders will be repaid, even if you default. But you'll pay for that guarantee in the form of up-front and monthly mortgage insurance.

With the government standing behind you, banks and mortgage companies can make loans they wouldn't normally offer at competitive interest rates that could cut your monthly payments by hundreds of dollars.

The average cost of an FHA loan was 4.07% — or about a tenth of a point less than for conventional mortgages. (It's the mortgage insurance FHA loans require, with significant up-front and monthly premiums, that ultimately make them more expensive.)

Borrowers who successfully refinanced their homes with an FHA loan had an average FICO credit score of 652 and 21% equity.

Here's where to learn more about the three most common options for refinancing your home with the FHA's help.

Refinance with a VA loan

An even better option is to refinance with a VA loan, which we consider to be the best mortgage program around.

Millions of veterans, as well as anyone on active duty and those in the National Guard and reserve units, are eligible. (Click here for full eligibility requirements.)

With the Department of Veterans Affairs standing behind these loans, they're also less risky for lenders.

That means you can have a lower credit score and less home equity than you'd need for a conventional loan and, in some cases, a higher debt-to-income ratio.

Indeed, you can have no equity and qualify for a new mortgage, and there's never any mortgage insurance required with a VA loan.

The average cost of a VA loan was 3.90% — or more than a quarter of a point less than for conventional mortgages.

Borrowers who successfully refinanced their homes with a VA loan had an average FICO credit score of 706 and 11% equity.

Here's where to learn more about the three most common options for refinancing your home with the VA's help.

It's a great time to refi, but you'll need patience

A little more patience is the one thing you'll need, whatever type of loan you decide to pursue.

Lenders are now taking an average of 44 days to process refi applications.

No one thought mortgage rates would remain this low after the Federal Reserve stopped flooding the mortgage market with money in 2014.

Back in the fall of 2012, the nation's bank for banks began buying $85 billion worth of debt a month, a fairly even split between Treasury bills and bonds backed by thousands of home loans.

That pushed mortgage rates to record lows in an attempt to boost real estate sales and property values.

With the housing market improving, the Fed gradually reduced those bond purchases and ended them altogether in November 2014.

Experts expected mortgage rates to rise by anywhere from a half point to as much as a full point.

But the demand for home loans fell precipitously in 2014.

Refinancings were off by 60%, and new loans to buy properties fell 15%. All in all, Americans took on less new mortgage debt than in any year since 1997.

The Fed's exit from the market just hasn't mattered. There's still plenty of money to fund all of the mortgages being written, and that's been reflected in lower interest rates — at least so far.

Although the Mortgage Bankers Association expects demand won't recover much over the next couple of years, it now projects the average cost of a 30-year fixed-rate loan will rise to 4.9% by the end of next year and 5.8% by the end of 2018.