So youre thinking about refinancing? Why not? Refinancing is the process of paying off your current mortgage and taking out a new one. Many borrowers use a refinance to shorten the term of the mortgage. Others may refinance to get their hands on some cash by tapping into their home equity. Whatever your reason may be for refinancing, here are some things to keep in mind:

First, even a small rate cut can pay off quickly. With the mortgage industry being so competitive, it is relatively easy to find mortgage companies who are willing to waive routine refinancing charges such as application, appraisal and legal fees. Some lenders offer no-cost refinancing, in which you do not have to pay most of the required upfront processing costs and closing fees. These costs may be added to the amount you are borrowing.

Second, if you are going to live in your home for at least three to five years, it may make sense to pay points to buy down the rate to get the lowest available rate. A Point equals 1% of the loan amount. For example, if you have a $250,000 loan, one point equals $2,500. As a general rule, each point that you pay will reduce the interest rate offered by the lender by about one-eighth of one percent, or 0.125%. In some instances, a lender may finance the points so you will not have to pay them up front.

And third, you may want to refinance in order to build equity more quickly than you can with your current mortgage. This may be desirable, for example, if you are nearing or planning your retirement and you want to pay off your loan more quickly. By refinancing from a 30-year mortgage to one with a shorter term (10, 15, or 20 year mortgage) you increase the amount of your monthly payment that goes toward the principal balance of your loan. Refinancing to a shorter term will save you a significant amount in interest costs not only each month, but also over the life of the loan.