Image: Mortgage rates © Comstock

Related topics: homes, home financing, interest rates, mortgage, refinance

When interest rates are low, plenty of homeowners rush to refinance without evaluating the consequences of their actions. A mortgage refinance can benefit some homeowners, particularly if they intend to stay in their home for the long term or if they can significantly reduce their interest rate. Sometimes, though, a mortgage refinance can be the wrong move.

"People often make poor decisions because of what I call 'interest-rate envy' around the coffee table," says A.W. Pickel III, the CEO of LeaderOne Financial in Overland Park, Kan. "They jump at refinancing just so they can say to their neighbors that they got a lower rate." (Should you refinance? Run the numbers with MSN Money's refi calculator.)

Here are five of the worst mistakes homeowners make when refinancing:

Not comparing the real rate

"Borrowers should shop around for a mortgage by comparing the APR of each loan rather than the quoted interest rate," says Gregg Busch, vice president of First Savings Mortgage in McLean, Va. "You need to look at the true cost of the loan and compare it to your current APR to make sure you will really be saving one-half point or more on the new loan."

Busch points out that a lot of homeowners today find out that their homes are worth less than they assumed at appraisal.

"Fannie Mae and Freddie Mac have added fees on loans with a high loan-to-value, so borrowers need to re-evaluate the rate and fees before they decide to refinance," Busch says.

Borrowers who have little or no equity may qualify for a refinance under the government's Home Affordable Refinance Program, or HARP, available to those with a current mortgage owned or guaranteed by Fannie Mae or Freddie Mac.

"The beauty of the HARP program is that it does not require an appraisal, so if you suspect you are 'underwater' on your loan, this could be a good option," says Busch. "Just make sure you compare the rate and fees to see if the new loan is worth the cost."

Choosing the wrong loan

Pickel says the first step when deciding to refinance is to establish a clear objective.

"If you think you may lose your job but you have one now, your focus should be to lower your overall payment regardless of the length of the loan," says Pickel. "If you want to be debt-free by a certain year, then you need to find a loan that meets that objective."

Pickel says that sometimes, even with a lower interest rate, you could end up with higher monthly payments because wrapping in the closing costs has increased the size of your mortgage.

Every borrower should look at the cost of refinancing along with the financial benefits before choosing a loan, Busch says. Some borrowers forget that refinancing into a new 30-year mortgage can add years of payments.

"A 10/1 ARM (adjustable-rate mortgage) or a 10-year fixed-rate loan can sometimes be a better choice depending on the individual borrower's circumstances," Busch says.

Not shopping around

While many borrowers compare loan offers from more than one lender, they can also shop for title services and save hundreds or sometimes thousands of dollars on their loan.

"Check at least three lenders and at least three title companies before choosing one," Busch says. "There can be an advantage to going to the same servicer that handles your loan now, because they may require less documentation, but I also recommend consulting with at least one other direct lender to compare rates and fees."

Ask the title company for a reissue rate on your owner's title insurance -- Busch says this can save as much as 35% on the premiums.