If interest rates decrease significantly from the time that a fixed-rate mortgage is originated, you want to get a new loan at a more favorable rate. This is called "refinancing". In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with refinancing.
The only difficult part of this calculation is predicting how much the up-front money would be worth when the savings are received. Obviously, this is not an exact science unless the money will be sitting in a fixed-income investment.
Other reasons to refinance include reducing the term of a longer mortgage, or switching between a fixed-rate and an adjustable-rate mortgage. If there are prepayment fees attached to the existing mortgage, refinancing becomes less favorable because of the increased cost to the borrower at the time of the refinancing.
Think of refinancing as paying off your existing mortgage and getting a new mortgage for exactly the same amount. You will need to make the same decisions about what type of mortgage to get and how to arrange the details of the financing to best fit your financial situation.
People who are retired sometimes consider getting a reverse mortgage. Reverse mortgages allow homeowners to convert the full or partial ownership they've built up in their home into cash in the form of monthly payments or a lump sum. When the home is sold or no longer serves as the primary residence, the balance of the loan is due. To insure that a reverse mortgage does not result in debt, the balance of the loan will always remain smaller than the value of the home. If the balance exceeds the value of the home, the homeowner cannot be forced to move or sell, and the lender is insured.
To receive a reverse mortgage, the borrower must be at least 62 years old and have little or no outstanding mortgage balances. Available equity is based on the person's age and the home's value. Like standard mortgages, reverse mortgages may have fixed or adjustable interest rates and require the payment of a variety of closing fees. However, the lender, a bank or traditional mortgage lender, may provide for the financing of any applicable fees.