In case you haven't been paying attention, in the last few weeks home mortgage interest rates have dropped substantially. Home loan interest rates are at least 1 percent lower than they were just two months ago. Over the life of a typical home loan, this decrease can save thousands of dollars in interest.

As a result of these recent changes, especially lower interest rates, many homeowners are considering refinancing their mortgage. Reasons for refinancing include escaping from an ARM, getting a lower interest rate, taking out tax-free cash, reducing monthly mortgage payments, paying off a balloon payment and arranging attractive assumable financing for a future buyer of the home.

Another situation where home loan refinancing is not advised occurs where the borrower took out a 90 percent or 95 percent private mortgage insurance (PMI) loan within the last few years. Unless the home has substantially appreciated in market value, refinancing is not advised just to save a little on the mortgage payment. Costs of refinancing will probably outweigh any monthly payment savings.