NEW YORK (MainStreet) – Homeowners with good credit and decent value in their homes have all the leverage they need to cut their monthly mortgage bill – if they avoid some costly mistakes.

After all, mortgage rates are once again flirting with historic lows – currently at 4.202%, according to the BankingMyWay Weekly Mortgage Rate tracker, down from 4.5% last week.

The difference between a 5.2% 30-year fixed rate mortgage and a 4.2% rate is significant. According to the BankingMyWay Mortgage Loan Calculator, a $300,000 mortgage with a 4.2% interest rate would mean a $1,467.05 monthly payment, while an interest rate of 5.2% would generate a $1,647.33 monthly payment – almost $200 higher.

That’s why mortgage lenders are seeing a flood of new mortgage refinancing applications. The Mortgage Bankers Association reports a 6% rise in refinancing applications last week. As mortgage rates tumble, expect those refinancing numbers to rise accordingly, since American homeowners do everything in their power to cut monthly expenses.

Still, that doesn’t mean you should rush into a refinancing deal without thinking things through first. LendingTree.com is out with a new survey this week on mortgage refinancings, and, noting that its own calculations show a rise in refinancings, offers some cautionary advice to homeowners:

• Overestimating the value of the home. Don’t inflate the value of your home – it’s probably depreciated, anyway. With home values dropping in today’s market, borrowers typically over-value their home, causing them to receive higher-than-expected loan offers.
• Hesitating to lock in low rates. Procrastination can cost you. Lenders are seeing borrowers waiting for rates to drop further, missing out on the opportunity to lock-in with the current low rates.
• Focusing only on interest rates. Don’t ignore the big picture. Borrowers are sometimes focused only on rates, when they should also factor in lender fees, loan terms and lender reputations into their ultimate decision.
• Overlooking shorter-term loans. Don’t be afraid to tighten things up. Many borrowers are refinancing into a 30-year fixed mortgage instead of considering other options such as a 20-year or 15-year fixed rate, which would shorten the life of the loan and significantly reduce the amount paid in interest.
• Keeping paperwork in order. Consumers are uncertain of what documents are required to refinance. Borrowers who haven’t refinanced in recent years sometimes fail to have the required document going into refinancing, which delays the closing process.

It’s a great time to refinance – if you have the necessary credit and plan on staying in your home for a while (aim for five years or so). But when you make your move, avoid the mistakes that LendingTree points out.

That could mean the difference between saving big bucks on your mortgage and actually adding to your debt burden.