The principles of refinancing a mortgage are simple: when interest rates drop, a homeowner can take their mortgage note and sell it to another lender—or even the same lender—in order for the new rate to apply to their loan, which will lower their monthly payments. This is not the same procedure, it should be noted, as a loan modification. In the latter, a homeowner facing a dire financial situation may request that their lender forgive a part of the loan or lower the interest rate even if it is supposed to remain higher. Under certain circumstances, the lender may agree, but having a loan modification on your financial record is not a positive by any means, and will affect your credit rating.
It may or may not cost you anything to refinance. It is important to consider how long you intend to live in your current home. If you expect to live there for a decade or longer, it might be worth the extra fees to obtain an advantageous refinancing structure, but if you only plan to be there for 3-7 years, you should look to find a refinancer who will not charge you for the mortgage restructuring.
The current “refi boom” is indicative of the uncertain status of the United States right now—the last time lenders saw this many people seeking to refinance was in the middle of 2003, when unemployment was high, the country was embroiled in two wars, and a couple of high-profile corporations, such as Enron, were ruined by their own malfeasance. Bad times in society will always, generally, lead to lowered interest rates, as money managers and the Fed work to re-instill consumer confidence. Conversely, these booms begin to die down as signs of recovery emerge. However, these booms only offer marginal help to the economy—while refinancing does allow homeowners to hold onto more of their money, that money will only help stimulate the economy back into health if the money saved is then used to purchase other goods and services. With unemployment at its current levels and general malaise among the American public, it may be as much as another year before this current “refi boom” ends.