The one sure bright spot — at least for borrowers — in this still-dismal housing market: ultralow mortgage rates. According to Freddie Mac’s weekly survey, the 30-year mortgage averaged a record low 4.69% for the week ending June 24, down from 4.75% the week before and 5.42% a year ago.

Falling demand for mortgage credit is likely behind the downward pull. Indeed, housing data released last week showed how far off a recovery is: New home sales dropped 32.7% in May from the month before and were 18.3% below the May 2009 figure. A smaller pool of borrowers means greater competition and emphasis on price, says Keith Gumbinger, vice president of mortgage-data firm HSH Associates.

Given the favorable rate environment, borrowers might be feeling pretty smart after snagging a great rate on a home loan. But there’s plenty of room for financial slipups while you’re paying off that mortgage.

Here are some pitfalls to watch out for while managing your mortgage.

Homeowners can lower their costs by refinancing, but only if they can recover the refinancing costs in a short period of time relative to how long they expect to be in the house. If you foresee living in the house for another five years, for example, and can expect to recover the associated costs within two or three years, then refinancing is a savvy move, says Jack Guttentag, professor emeritus of finance at the Wharton School.

“A lot of people don’t do it — either through lethargy or because they have the foolish notion that if they refinance, they’re losing something by starting from the beginning,” says Guttentag. They aren’t. They start a new mortgage with the balance remaining on the old one, and while the new term will exceed the period left on the old one, it’s easy to keep on the old schedule — if they increase their payment by the amount needed to pay off the new mortgage in the time that remained on the old one, says Guttentag.

Some borrowers assume that refinancing from a 30-year loan at 6% to a 30-year loan at 4.75% will save them in reduced interest payments. That’s not always the case if you’re essentially extending the term of the loan. If you have just 10 years left on a 30-year mortgage and you’re offered an opportunity to reduce the payments by taking out a new 30-year mortgage, it’s not a win.

“You’re going to be paying down your loan much more slowly for the rest of its life,” says Guttentag.

Getting complacent about your adjustable rate

Homeowners who have adjustable-rate mortgages have seen their payments go down as rates have decreased. But these rock-bottom rates can’t last forever, and before you know it, you’ll get hit with a nasty rate increase when your ARM resets, says Karen Schaeffer, a certified financial planner and managing member of Schaeffer Financial. (With an ARM, the rate is fixed for a period at the beginning, called the “initial rate period,” but after that it may change based on movements in an interest-rate index.)

One way to avoid that potential surprise is to refinance into a fixed-rate loan before the impending reset, “so five years from now, you’re not stuck with the rates after they’ve gone up,” says Schaeffer. Locking in a rate now is a particularly good idea for borrowers who had gotten an ARM with the intention of living in the home for, say, five or six years, but who, because of the bleak housing market, have decided to stay longer to wait out a rebound in values.

Think of prepayment as one type of investment. If you have a good amount of cash sitting in the bank earning a paltry 1% or 2%, you should seriously think about using that money to pay down your mortgage balance. Paying down your loan amount earns a return equal to the rate on your mortgage, says Guttentag.

If you pay down the balance on a 5% loan, you’re earning 5% on that money, instead of the 1% or 2% you’d get from a savings account or CD. “It pays a risk-free return equal to the mortgage rate. A lot of people just don’t understand that,” Guttentag says.

Another potential benefit of prepaying — and paying off your loan sooner — is avoiding private mortgage insurance. The broad decline in property values brought on by the housing slump has meant lost equity. Lenders typically require the insurance if you have less than 20% equity in the home. If you pay down the mortgage balance so that your loan-to-value ratio is less than 80%, you can eliminate that expense.