• Understanding the refinancing process before you commit to a particular lender is important to avoid spending more money than necessary. Lending institutions and real estate professionals often promote refinancing loans through marketing materials that emphasize particular benefits to entice customers without directly addressing costs required to refinance.
  
  

Interest Rates

• Before refinancing, research the mortgage market to gauge how interest rates behave. Examine how a fall or rise in rates affects the long-term cost of your mortgage. For example, if you refinance during a time when mortgage rates are increasing, you may not get as low a rate as if you waited until interest rates decreased.
  
  

Credit History

• Be familiar with your credit reports so you know how your loan application is likely to be evaluated. The loan application is the first part of the refinancing process, which includes a credit check by your lender. Your credit history has a strong bearing on the interest rate applied to your refinanced mortgage. Lenders are more likely to give you a lower interest rate if you have healthy credit scores. If you know ahead of time that your credit has negative information, you may prefer to wait until the negative issue is resolved or removed from your credit report before refinancing.
  
  

Upfront Costs

• Refinancing can cost 3 to 6 percent of the remaining balance on your mortgage. The cost of refinancing is made up of fees lenders use to fund the refinancing application and the tasks associated with establishing a new mortgage. According to the Federal Reserve, common refinancing fees include application, appraisal, inspection, origination and attorney fees. Fees vary between states and lenders, so be sure to obtain a list of fees specific to your lender.
  
  

Penalties

• Review the terms of your current mortgage to determine if you are liable for prepayment fees. Prepayment fees are charged by some lenders when you pay off your mortgage ahead of schedule. Since refinancing pays off your new loan and establishes a new one, prepayment fees add to the cost of refinancing. Federal Reserve estimates indicate that prepayment penalties can be as much as 6 months' interest.
  
  

Staying in Your Home

• Consider how long you plan to remain in your home after you refinance. This is important for you to recuperate the money you spend on refinancing costs. To break even from refinancing, you must remain in your home long enough to make back refinancing costs from the monthly savings. You can estimate your break even point by dividing your total refinancing costs by the amount of your monthly savings. The result is the number of months you need to stay in your house to recuperate the refinancing costs.