Reasons remain to refinance
By Holden Lewis • Bankrate.com

But the Mortgage Bankers Association estimates that homeowners will only refinance $938 million this year, as compared to the $1.17 trillion refinanced last year. As the average rate on 30-year fixed mortgages moves above 6 percent, economists expect this refi activity to gradually slow down even more.

Still people have many reasons to refinance, even now: to get rid of mortgage insurance, to switch from a fixed-rate loan to an adjustable or vice versa, to extract cash from a house that has grown in value and, of course, to lock in a lower rate.

Bye-bye, PMI
When you borrow more than 80 percent of the home's sale price, you usually have to buy mortgage insurance. The amount you pay depends on the percentage of the home's price that you borrowed, called the loan-to-value ratio. A way to get out of paying mortgage insurance is to get a "piggyback loan" -- a second mortgage on top of a first mortgage for 80 percent of the home's price.

If you pay for mortgage insurance and your mortgage is more than two years old, you might be able to get rid of the mortgage insurance payment by refinancing the loan. This will work if the home has appreciated in value substantially. If your current loan balance is less than 80 percent of the reappraised value of the home, you can refinance and get rid of mortgage insurance.

There are a lot of catches and caveats, so you should call your mortgage servicer to find out if you qualify to refinance your way out of paying mortgage insurance.

Hello to ARMs
One of the biggest reasons to refinance is to switch from a fixed-rate loan to an adjustable-rate loan, says Doug Perry, first vice president for Countrywide Home Loans. He believes that a lot of homeowners would benefit from switching to what he calls "fixed-period ARMs," also known as hybrid ARMs. These adjustable-rate loans have a fixed rate for a specified period, then adjust annually thereafter. One with an initial rate that lasts three years, then adjusts annually, is called a 3/1 ARM. The rate on that initial period is lower than the rate for a 15- or 30-year fixed-rate loan, so borrowers save money.

Perry gives a hypothetical example of a homeowner who refinanced in 2002 to a 30-year fixed-rate loan. "They don't have any intention to stay in their house another 28 years and they call in and realize that, 'Gosh, I can save a lot of money by refinancing and going to a fixed-period ARM,'" Perry says.

Bankers say that a homeowner who plans to move up to another home in three or four years can save a lot of money with little risk by refinancing from fixed-rate loans to 3/1 ARMs, whose initial rates are often about 1.25 to 1.5 percentage points lower than the rates for 30-year fixed loans. Homeowners who plan to move in five or six years would benefit from switching to 5/1 ARMs, whose initial fixed-rate period lasts five years.