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2020 has been a tough year for many, however, there is a silver lining in this turmoil to be found in mortgage rates. Right now interest rates on mortgages are the lowest we've ever seen giving homeowners a great opportunity to refinance and save hundreds on their monthly payments.

TV personality and financial advisor, Suze Orman has a few tips to help you do this successfully.

"It makes me so crazy how most homeowners make a huge mistake when they refinance," she says.

Orman says it's a mistake so easily avoidable but could cost you a lot even if you manage to get a rate far lower than your peers.

Do NOT do this

The coronavirus crisis has rattled investors and caused the Fed to slash interest rates nearly to zero to help prop up the economy. As a result, mortgage rates have plunged to all-time lows.

These low rates prompted almost 1.7 million homeowners to refinance during this year's second quarter (April-through-June) more than doubling the number who secured new loans during the same period in 2019. This is a figure that comes from a study done by Attom Data Solutions.

Orman says the costly mistake most of those recent refinancers probably made was to automatically sign up for another 30-year mortgage. Even if they'd been paying down their existing 30-year loan for several years, this is not the right move according to Orman.

"This is so very wrong," she writes, in her blog.

The personal finance guru says, "Sure, the new mortgage is at a lower interest rate, but you just extended your mortgage-payment on this home to 44 years!" she says when giving an example of a mortgage that had been paid for 14 years and was being refinanced for another 30 years.

When does a 30-year refinance becomes sensible?

The 30-year fixed-rate mortgage is America's most popular home loan. So naturally, it is the go-to for homeowners who want to trade in their existing mortgages for a better deal.

It also is the most obvious option if current your mortgage is fairy new. Millions of people financed their homes at the beginning of 2020 when 30-year mortgages were averaging around 3.75%. If they had waited, they could have saved an average of $299 by refinancing at today's low rates.

But, Orman generally recommends refinancing to a new loan with a shorter term. A move that is supported by many financial advisors.

"My rule of refinancing is that you are to never extend your total payback period past 30 years," she says on her blog.

Let's say you are indeed still holding onto a 30-year loan you took 14 years ago during the fall of 2006.

At that time, rates were averaging a high 6.4%. Say your mortgage was originally in the amount of $250,000; you'd now have a balance left of about $188,000.

Why refinance to a shorter-term loan?

Today, rates on 30-year fixed home loans are averaging just 2.87%, according to mortgage company Freddie Mac.

If you were to refinance that $188,000 balance to a new 30-year mortgage at 2.87% and stay with the loan for the entire term, the lifetime interest would total close to $93,000.

You could choose to do a 15-year refinance instead. Fifteen-year mortgages have lower interest rates than 30-year loans: The average for a 15-year is currently 2.37%. A half percent lower which may not seem like a lot been when you're talking about hundreds of thousands of dollars, this half a percent adds up.

With a $188,000 15-year mortgage at 2.37%, you'd pay interest of roughly $35,600 over the life of the loan. That's $57,400 less than the 30-year refinance. That money could buy you a nice car or help put your child through college.

How to choose the right option for you?

But many refinancers don't choose 15-year loans because they don't think they can afford the higher payments. The monthly payment (principal plus interest) on a 30-year refinance in the amount of $188,000 at 2.87% is about $780. The monthly payment (principal plus interest) on a 15-year refinance in the amount of $188,000 at 2.37% is $1,242. A scary increase in the short-term but huge savings in the long-term.

But Orman says that recently 15-year mortgage rates have been so low, "that you may be able to refinance your remaining balance and end up with a payment that is not much different than what you were paying on your 30-year."

before choosing either option, make sure you feel certain you're going to stay in the home a few years.

"There is no such thing as a free refinance," Orman says. "You will either pay closing costs — which can be a few percentage points of your loan cost — or a higher interest rate."

Average mortgage closing costs now top $5,700, according to data from ClosingCorp. The closing costs could actually net you a larger expense if you leave before the savings from the refinance pay for the costs of closing a refinance. So make sure you stay long enough to pay the new low rate and let the savings pay off those fees.

If you you plan to be in the house for the long haul, refinancing into a 15-year mortgage can be the smart choice. Just make sure you can handle the payments. Your interest rate will be lower and you will save thousands over time.

However, if you're not going to stay long-term, going with another 30-year mortgage and its lower monthly costs can be the smarter move.

Do your homework. Before you settle on any loan, always shop around. Get mortgage offers from several lenders to find the best rate available in your area and for a person with your credit score. The first offer is not always the best one and as seen above, just a half percentage point could equate to tens of thousands over time.

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