Mortgage interest rates, which recently reached their lowest level in 21 months, have caught the attention of homeowners. Of all consumers applying for home financing today, nearly seven out of every 10 are existing homeowners seeking a refinance, according to the Mortgage Bankers Association of America.

Homeowners who made their purchase in the last two years, when long-term rates averaged around 7.75 percent, or those with an adjustable rate (ARM) or balloon mortgage, may benefit from a refinance. Refinancing allows homeowners to 1. lower their payment; 2) take cash out based on the equity in their home; and/or 3) change their loan program.

For most homeowners, saving money is top priority. Refinancing has the potential to save homeowners hundreds of dollars each month and thousands of dollars over the life of their loan. For example, a home buyer financing a $200,000 loan last January with a 30-year fixed-rate loan would have received an interest rate of around 8.25 percent. This translates into a monthly principal and interest payment of $1,502.54. Refinancing that same loan today at 7 percent would cost the homeowner $1,330.60 per month - a savings of $171.94 a month and $2,063.28 a year.

But refinancing may not be the right answer for everyone.

•Timing is everything. Determine the length of time you plan to stay in your home. From a cost perspective, most experts agree you'll need to stay in your home between one and five years to recoup the costs associated with a refinance, which is typically one to two percent of your loan amount. A quick way to determine the amount of time it will take to recoup your costs is to divide the total refinancing costs by the total monthly savings. For example, if it costs you $2,250 to refinance your loan, but reduces your monthly payment by $150 ($2,250 divided by 150 equals 15), you would need to live in the house 15 months or longer to realize any cost savings.

•Stay the course. Your current lender will likely be able to offer the best refinancing deal. Many lenders now offer streamlined refinance programs for their customers. These programs typically cost less and require less documentation, saving you time and money.

•Shop around. If you're not satisfied with your current lender, shop around. Visit several lenders to evaluate interest rates, costs, as well as products and services. Today, the Internet makes this easy because many lenders offer refinance calculators and other helpful tools on-line. Then select the lender that offers the best combination of these services, and yet is reputable. A disadvantage of shopping around is that interest rates change daily. A slight increase in interest rates may mean you can no longer afford the home of your dreams. Consider locking-in or reducing your search if you feel comfortable with the interest, product and lender.

•The bottom line. Make sure you understand all the costs associated with refinancing. To do this, assume you'll stay in your home for five years. Ask your lender to provide your total costs over a five-year period for these items: a) upfront fees; b) all charges, such as origination, appraisal, credit report, recording fee, etc.; c) total financing cost for five years; and finally d) closing costs.

•Service and flexibility. While cost is certainly a primary consideration, service is equally important. After all, the lender you select may ultimately service your loan for many years. Therefore, select a lender who is in the mortgage business for the long haul and has a focus on customer service. These might include any national lenders or larger local lenders. Also, consider other services your lender offers that might make your life easier, such as on-line access to your account or electronic bill pay options.

•Seal the deal. If interest rates are at a level you can afford, take advantage of the opportunity and lock-in your interest rate. Many lenders will lock-in an interest rate over the phone or fax and confirm it in writing. However, most reputable lenders will charge a small fee for this service. But this is a small price to pay for an interest rate that will meet your long-term financial plans.

Finally, keep in mind that it does not necessarily make sense to include home equity balances into a refinance. Home equity products typically offer lower rates than most consumer loans and provide possible tax benefits (consult a tax advisor). Moreover, adding a home equity product when refinancing can provide a convenient means to cash for such things as debt consolidation, home improvements or a child's education.