Do you know what it means to refinance your mortgage? If you don’t, you should not feel ashamed – many homeowners do not. Refinancing, however, can save you hundreds or even thousands of dollars over the course of your mortgage term. Refinancing does not make sense for everyone, but if you do decide to refinance your mortgage, follow these steps to keep as simple as possible:

Step One: Calculate and prepare for the costs.

Refinancing does not make sense for everyone. Most people refinance to get a lower interest rate and even a single percentage point can save you thousands of dollars over the life of your loan. However, do not forget that you will also have to pay for closing costs again when you refinance. When you originally purchase a home, the closing costs typically range from $2000 to $6000, depending on your area and the cost of the home.

Sometimes the seller chips in to help pay for these expenses. In any case, while you may not have to pay for every fee again (for example, the title transfer fee should not be changed a second time, since you are not transferring the title to anyone), most of the changes will apply. This can eat up any gain you see from getting a lower interest rate. In any case, make sure that you are prepared for the costs. If you are not, your only option is to add them to the total mortgage, and that ends up costing you even more money in the end, since you will be paying interest on the closing costs.

Step Two: Look at financial trends.

Because of closing costs, it doesn’t make sense to refinance more than once or twice over the life of a loan, even if your mortgage term is 30 years or more. Therefore you want to refinance when the interest rates hit their lowest. That can be difficult to predict, so do your homework and look at financial trends. Depending on the value of your home, you may want to also seek the advice of a professional.

Step Three: Talk to your mortgage lender.

For most people, it makes sense to stick with the same mortgage lender when refinancing. If you are considering this option, talk to your mortgage lender about current promotions and other opportunities, and get a good faith estimate, like you did when you first purchased your house. Also review your current mortgage contract to see if there are any fees or limitations pertaining to refinancing.

Step Four: Consider other mortgage lenders and decide on a lender.

Although it likely is best to stay with your originally mortgage lender, there are cases when you should refinance to move your mortgage to a different lender. Call other mortgage lenders in your area and check out estimates online. Do a thorough search to answer all of your questions and determine which mortgage lender is best on price and other characteristics, such as customer service.

Step Five: Complete the application.

You have to apply to refinance. As long as there are not any limitations with your original contract, you will likely be approved. However if your financial situation has vastly changed, your mortgage lender may not approve the refinance. Remember, you have a contract with your lender. They are not obligated to allow you to refinance.

Step Six: Negotiate.

Just like the first time around, every part of your new mortgage contract is negotiable. While you likely want to keep most of the things the same, you can also consider a different term, changing your repayment schedule, and more. Come up with a list of things you do not like about your current mortgage and ask your lender if there is anything you can do to change those things. Be a savvy negotiator and get a strong mortgage contract that makes you happy.

Step Seven: Choose a settlement date to sign the new contract.

Refinancing may seem simple, but there are mounds of documents associated with it. Set up a settlement date with your mortgage lender to finalize the deal and sign all of the documents. Remember, if there are deadlines for offered rates, make sure you’re within the time limit so that you don’t get to the meeting to find that all of your negotiation is back at square one.

Step Eight: Read your new contract and sign the documents.

Before you sign anything, make sure you read it. Ask questions if you don’t understand something – before you sign. Then, it is simply a matter of signing the paperwork, and your new interest rate and other terms will take effect.