A lower rate allows a homeowner to replace an older mortgage with one that has a smaller monthly payment. There are two reasons people would refinance when rates are rising. By refinancing with new, bigger loans, even at higher interest rates, these borrowers can pay off older mortgages and have money left over for other things. Rather than move to a bigger home, for instance, a growing family might refinance to get cash to expand the one they have.

The other reason for refinancing when interest rates are rising is to replace an adjustable-rate mortgage with a fixed-rate one. So, rather than stick with an ARM charging 8 percent or more, I'd switch to a fixed loan charging 6.5 percent to 7 percent.

By Mabelle Sese
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