To refinance or not to refinance, that is the question...

If you can refinance at a lower rate, why wouldn't you?

I can think of at least two reasons-(i) your property value has gone down to the point where you cannot qualify for a loan large enough to pay off your existing loan or (ii) the 'payback' period is too long.

In this market, property values have declined to the extent that you may not be able to meet the lender's loan to value ratios. For example, if the loan balance on your existing loan is $100,000 and the current value of your home is $110,000 and the new lender's guidelines are such that they will loan 80% of its value. The new loan amount would then be $88,000. In order to refinance, you would have to pay the $12,000 difference between the old loan amount and the new loan plus the closing costs of the new loan. Assuming you had the $15,000 to proceed, you would then decide whether the lower payment was worth the cost.

If your property's value would support a loan of $100,000 you would still incur the closing costs. If we assume those costs are 3% of the loan amount or $3,000, your new monthly payment would have to be enough less than your old payment to justify the expense of refinancing. If you intended to sell the house in the foreseeable future it is much more likely you would never experience enough savings to pay for the closing costs of the new loan. So make sure you do the math and see how long it would take to recover the closing costs. If it takes more than 2 - 3 years, you may want to keep your existing loan.

There are many good reasons to refinance, but the above are two reasons you might not want to.