Annual Percentage Rate is an index used to compare home loans. It is a somewhat artificial rate that was designed to compare the true cost of home loans.

Different banks calculate Annual Percentage Rate in different ways, so that comparing the rate of two loans does not actually show which home loan is cheaper.

Lenders consider the following in calculating APR:

- points of a home loan.

- the interest paid between the loan closing date and the end of the month.

- home loan processing fee and underwriting fees.

- document preparation fee.

- home loan private mortgage insurance.

Some banks also include home loan application fees and credit life insurance, which pays the home loan off in the event of your death.

Refinancing a mortgage is actually means getting a new home loan. Most people refinance their mortgages for one principal reason: they want to save money. I can recommend 3 major methods that help you save money through refinancing a mortgage.

1. You can get a lower interest rate after refinancing a mortgage which lows your monthly payment. This method is used by many home owners who have been paying their mortgage for a year or two. It helps to improve their credit score significantly.

2. You can refinance your mortgage to obtain different terms which are more favorable for you. You can refinance a 30 year loan for a 20 year mortgage. Thus the total amount you have to pay over the years will be a lot less, and the number of payments is reduced to 240. This method helps you save money over the life of the home loan, but you will have to pay more monthly.

3. Many people refinance their home loans to pay off their debts. The amount of money they pay becomes part of the mortgage, and the interest on mortgages is tax deductible. This method can help you pay off student loans, car loans, credit card debts and other debts through a home loan saving money on federal taxes.