Perhaps in honor of the Fourth of July, the Federal Housing Finance Agency (FHFA) quietly announced a small change that could free millions of homeowners from the oppressive bounds of a high monthly mortgage payment.

Or, maybe it’s just the next installment of “How the Credit Crisis Turns.”

FHFA announced on July 1, 2009, that loans that are owned or guaranteed by Fannie Mae and Freddie Mac would be eligible to be refinanced if the home loan-to-value ratio is 125 percent. The current home loan-to-value ratio is 105 percent under the Home Affordable Refinance Program (HARP).

If you own a home that is now worth $200,000, but your mortgage amount is $250,000, you would qualify to refinance under the program. Prior to the government putting Fannie Mae and Freddie Mac into conservatorship, you would have had to have at least 20 percent equity in order to qualify for a refinance.

But with home values continuing to drop and the number of delinquent mortgages and foreclosures continuing to rise, it became clear that the current 105 percent loan-to-value refinance ratio wasn’t helping enough homeowners lower their monthly mortgage payments.

“The higher LTV refinancing will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates,” FHFA Director James Lockhart said in a press release.

Unfortunately, the recent rise of mortgage interest rates to 5.25 percent means fewer homeowners will find that refinancing their mortgage makes sense.

The federal government is letting homeowners know that if you choose a loan term shorter than 30 years, you’ll not only pay off your home loan sooner, but you’ll be able to take advantage of even lower interest rates.

In the release, FHFA says that there will be an incentive of 0.125 percent for opting for a 25-year or a 20-year term rather than a 30-year mortgage. Lockhart said the lower interest rate incentive combined with a shorter loan term means that homeowners will pay less and will get “above water” on their mortgages more quickly.

When deciding whether to refinance your mortgage, it’s important to think about hitting the refi-trifecta:

1. Can you shorten your loan term? The biggest benefit to refinancing comes from being able to cut years off of your loan term. Choosing a 15-year loan over a 30-year loan may mean you’ll save tens of thousands of dollars over the life of the loan. If you can’t shorten your loan term (even by 5 years), try to set up an amortization schedule that will allow you to pay off your loan in the same amount of years you have left on your current loan. So if you have 25 years left on your loan, try to refinance to a 25-year term rather than another 30-year term.

While shortening the length of your loan might be a good long-term decision, the monthly payment usually goes up. Back in the go-go real estate years, home buyers opted for 40-year loans in order to buy a bigger house with lower monthly payments. It was in those boom years that home buyers and owners should have been looking to shorten the length of their loans and in these recessionary times that people need to conserve cash that people would want to have lower monthly payments.

2. Can you cut your monthly payment? If you’re moving from a 30-year term to a 15-year loan, your monthly payment generally will be much higher. But if you are several years into your current loan, refinancing from your existing 30-year loan to a 15-year loan could result in a monthly payment that could go down.

3.The best kind of refinance will allow you to lower your monthly payments but also reduce the number of years on your loan. That said, the refinance may still be worth doing if you can lower your monthly payments to reduce the stress on your monthly budget.

4. Is your interest rate lower? If you’re able to cut the loan term and cut your monthly payment, the only way to do that is because you’ve lowered your interest rate. But it doesn’t always work in reverse: You can lower your interest rate but not save anything on your monthly payments due to higher costs and fees of refinancing the mortgage or because you’ve opted for a longer loan term.

Be sure to take the time to shop around. Some lenders will charge you thousands of dollars for your refinance, while others will charge just a few hundred. You’ll want to know exactly what the costs will be before signing your application.

Be careful, some lenders will promise a lower monthly payment, but will add years to your loan. The idea isn’t to keep a loan for a longer term, but to pay less each month and for a shorter period of time.

Read more about this issue in Three Rules For Refinancing Your Mortgage and lowering your monthly mortgage payment