Many borrowers use a refinance to shorten the term of the mortgage. But brace yourself: Even at low rates, a shorter term means a higher monthly payment. The benefit is that you'll build up equity faster and could pay far less in total interest over the life of the loan.

For example, consider a couple who took out a 15-year fixed-rate loan at 6.75% to replace an 8.13% ARM with a 30-year term. Their monthly payment jumped by $200, but the total interest on the 15-year loan will come to $95,447, vs. $222,234 on the remaining life of the ARM -- and that assumes their adjustable rate would have held steady at its current 8.13%.

If you can't afford the payments on a 15-year mortgage, your next best means of building equity is to refinance for less than 30 years. To do so, ask your mortgage company to customize your new loan's term to match the years that are left on your old loan -- if you are five years into a 30-year mortgage, for example, ask for a 25-year loan.