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Home equity loans can save you money each month and have your debts paid in full quicker than if you kept your variable rate credit lines. A lower interest rate and monthly payment on your home equity loan can free up cash for other uses, or make your debt more manageable. Interest rates move in cycles, so the best time to refinance is when rates drop.

"Refinancing tends to happen in surges -- in fits and starts," says Bill Hampel, chief economist for the Credit Union National Association in Washington, D.C. "Typically, rates should fall a point or more before you do it."

Refinancing entails closing costs and other fees, so it's important to know whether lower monthly payments will offset that cost. (Use this calculator to figure out the payments on a loan.)

"The smaller the drop in interest, the longer it's going to take you to recover the cost of refinancing," says Hampel.

Another factor to consider is how long it will take you to break even. For example, if refinancing costs run you $2,500 and your payments are $100 lower each month, it will take you 25 months to break even.

If you plan to sell your home in a year, refinancing is not the smart thing to do.

"If you plan to be there a long time, then it makes sense," says Steve O'Connor, senior director of residential finance for the Mortgage Bankers Association of America.

Besides a lower interest rate, two other reasons to refinance are:

The opportunity to convert all or a portion of your equity loan from an adjustable rate to a fixed-rate installment loan
To obtain a shorter-term loan to build new equity more quickly.
When they refinance at a lower rate, some homeowners take the cash from the equity they've acquired to pay for a big expense such as a remodeling project or their kids' college tuition.

Refinancing is also a way to avoid a balloon payment. If you combine your first mortgage and home equity loan or credit line, you can get one fixed-term payment and avoid paying a giant lump sum.

Be aware, though, that refinancing can be a bad deal for those who are taking out equity to pay off credit card debt. If you transfer $15,000 in credit cards to a new 30-year first mortgage, your monthly payments will be lower but it's costing you more to pay off the revolving credit debt because of the lengthy term of the loan.

If you can swing it, you're better off taking 10 years to pay off the charge cards because it will save you 20 years' worth of additional interest.

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