Because of declining mortgage rates, many homeowners are choosing to refinance their home loan. If your home was purchased when rates were much higher, you may benefit from a new mortgage. Although refinancing is an attractive mortgage feature, it is not always the best option. Before refinancing, it is important that you understand the process.

Mortgage Refinance Information

A mortgage refinance creates an entirely new mortgage. This mortgage replaces the old. Therefore the process is very similar to acquiring the original loan. Getting a mortgage loan is an extensive process. You have to review your credit, compare lenders, and pay fees associated with mortgages. Common mortgage fees also apply to refinancing your home.

Why Refinance Home Mortgage Interest Rate?

Some mortgage experts suggest that the time to refinance is when your current mortgage rate is about two percentage points above the market trend. If you refinance with a one point different, the savings are small and not worth the refinancing costs. This is a great option for those who purchased their homes when mortgage rates were at 8 or 9 percent. An interest rate drop will cause a reduction in your monthly mortgage payment.

An additional reason for refinancing your present mortgage is to get a fixed rate mortgage. Today, there is a variety of loan programs. These include adjustable rate mortgages, interest-only mortgages, etc. Initially, these loans carry low interest rates. However, because the rates are not fixed, they may increase. As mortgage rates increase, so does your mortgage.

Home Mortgage Refinance Costs

If you are hoping to get a fixed rate mortgage or a lower interest rate, be prepared to pay closing costs and mortgage fees. The fees for mortgages vary. On average, you can expect to pay 3 to 6 percent of the total loan amount. This does not include down payments.

Typical mortgage fees include application fee, appraisal fee, hazard insurance, attorney's fee, title search, home inspection, loan origination fee, and mortgage insurance. To obtain a lower rate, you may have to pay points. If you refinance with your current mortgage lender, some fees may be waived.

See my recommended Home Mortgage Refinance Lenders for the lowest rates online.

Carrie Reeder is the owner of ABC Loan Guide.