Mortgage rates have continued to drop this week, with the national average for the 30-year fixed rate mortgage down to 3.83% from 3.96% one week ago. The national average rate for the 5/1 adjustable-rate mortgage comes in at 3.12%. Rates are lower than expected, and continue to drop again predictions of early 2015 predictions made in 2014.

Part of the reason for today's low mortgage rates has to do with bond yields. Due to investor concerns about deflation and the recent plumage of old prices. All of this uncertainty lows bond yields, which allows mortgage rates to lower with the yields. This Tuesday shows the lowest 10-year Treasury percentage at the lowest level since May of 2013. The last time the percentage was so low, the average 30-year rate dropped to 3.55%.

Looking strictly at this data, there couldn't be a better time to refinance. According to a report from Black Knight Financial service, there are currently 7.4 million homeowners who can save money through a refinance. Those included in that figure have at least 20% equity in their homes, good credit, and a mortgage rate of at least 4.5% or higher. That figure of 7.4 million might be increased substantially as Fannie Mai and Freddie Mac are soon to offer a 3% downpayment loan; opening the possibility of a refinance to millions more homeowners.

How do you know when you're ready to refinance? Most people believe that if you drop your rate by 1% or more, or if you can find a deal that lets you recoup the costs of refinancing within at most two years. The longer the life on your loan, the more you can benefit from a refinance, even when the rate break is less than the traditional one percent.

While there are many benefits to a refinance, your money might be of better use somewhere else. There are a couple reasons for this: Even if you have a higher rate than what you would qualify for now, your credit card debt, car and student loans will almost always carry higher rates. You should always try to get bigger debt out of the way before spending money on a refinance. The other reason is that your mortgage monthly payments will be the same for the life of the loan. Because of inflation, what seems like a large payment now will be much less of a big deal in a couple years.

Some caution borrowers against homeowners from refinancing into shorter loan period because of this reason. Though you may refinance into a lower rate, you may consider a longer loan term because inflation will eventually make your payments look very small. You might use the money for something else, such as investing or home improvements.