Significance

Refinancing can help you receive a lower interest rate. If your interest rate is lowered, you will pay less interest during the life of the loan.

Considerations

Some people refinance to lengthen the term of their loan. This has the effect of lowering your monthly payment, but you will pay more interest with a longer term.

Equity

Refinancing also gives you a chance to tap into the equity in your home and use it to consolidate debts or complete home improvements.

Features

Some people refinance to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage. If your rate is adjustable, it can increase when the corresponding index increases causing your payments to also rise. A fixed rate remains constant.

Fees/Costs

According to Federalreserve.gov, you could incur refinancing fees for the application, loan origination, points, appraisal, inspection fee, attorney review/closing fee, title search and title insurance. Many lenders allow you to roll the costs into the total loan so you don't have to pay out-of-pocket expenses.

Prevention/Solution

When you refinance, you may be able to get rid of the private mortgage insurance, (PMI), which is insurance required by lenders if you don't put 20 percent down when you purchase your home. Eliminating PMI can reduce your monthly payments.

Source:

MortgageLoan.com: Mortgage Refinancing basics series

The Federal Reserve Board: "What will refinancing cost?"