Interest Rates

• The interest rate is one of the key parts of the refinancing process. According to the Federal Reserve, interest rates have a direct impact on the amount of your monthly mortgage payments. Higher interest rates generate higher mortgage payments; the result of higher payments is ultimately paying more to own your home. Refinancing is beneficial if you qualify for a lower interest rate than the one currently associated with your mortgage.
  
  

Term

• The length of the mortgage, called the term, also affects the cost of borrowing. The longer you pay on your mortgage, the more money you pay in interest. Refinancing to obtain a shorter term helps reduce the total amount of interest you pay to your mortgage lender. In addition to paying less interest, you finish paying off your home sooner and build equity at a faster rate.
  
  

Fees

• Refinancing costs should also be considered as you weigh the pros and cons of refinancing. The fees you will pay to refinance will be very similar to those paid when you originally established your mortgage. According to 2008 estimates from the Federal Reserve Board, refinancing your mortgage can cost between three and six percent of the amount of the loan you are refinancing. This ratio is the equivalent of paying between $30 and $60 per $1000 you are refinancing.
  
  

Comparing Lenders

• Knowing the impact of interest rates, terms and refinancing fees, evaluate the offers from several lenders to ensure you choose a loan that decreases the cost of financing your home. Lenders have different qualifying criteria to approve applicants. If one bank denies your application or offers you more expensive terms, speak with other lenders and negotiate better terms. According to the Federal Reserve, you can negotiate with lenders to reduce or waive fees, especially if you bargain among lenders.
  
  

Breaking Even

• Conduct an estimate of your break-even point to see how long it will take to recuperate all the fees you paid during the refinancing process. Add all your refinancing costs to determine how much refinancing costs overall. Also, find the difference between your current mortgage payment and what a new mortgage payment would be with a particular lender. Divide the total refinancing fees by the potential difference in your mortgage payments. The result is the number of months it takes to make back your refinancing costs.