Compare no-fee rates

A traditional mortgage refinance has upfront closing costs, which you pay for out of your pocket. A second option is the no-fee loan, which has a higher interest rate but no upfront, out-of-pocket costs. When the no-fee loan rate is lower than what you're paying currently, this might be the right choice-particularly if you don't know how long you want to keep the home. The drawback is that the rate differential between traditional mortgage refinances and no-fee loans is relatively large right now-another outcome of the mortgage crisis.

Compare these two options in terms of total interest costs and your willingness to pull money out of your Savings-account">savings account. In that light, the right choice will probably be obvious.
Calculate refinance breakeven point

If you choose to pay closing costs upfront, calculating your refinance breakeven point is a critical step in developing your refinance strategy. That's because you don't save a dime on the refinance until you're fully reimbursed for those closing costs, by way of the lower monthly payment. Say you have to cover $2,000 in closing costs to lower your payment by $100; your refinance breakeven is 20 months. If you sell or refinance again prior to that breakeven point, you'll have lost money on the deal.

A mortgage refinance can save you money if you have a plan. If you don't, it may not save you anything and, worse, the whole process may be stressful. So be smart, and proceed with care.