Costs, Terms Can Help Determine Whether to Refinance

As mortgage rates head for new lows, here are some tips for deciding whether to refinance:

* Figure out how much you will save. Typically, consumers save about $30 a month for each half-percentage-point on a $100,000 loan. The savings would double on a $200,000 loan--or if the interest rate fell by a full percentage point instead of half. For a more precise estimate of potential savings, use a Web-based calculator such as the one at www.bankrate.com.

* Calculate the upfront costs. Upfront costs such as points --prepaid interest--title insurance premiums and appraisal fees can range from 1% to 2% of the loan amount, or even higher (although many lenders are now offering mortgages with no points). Lenders are required to provide a good-faith estimate of these costs. If the actual fees turn out to be significantly greater, you can back out of the deal.

* Determine whether the upfront costs cancel the monthly savings. Divide the refinancing costs by the monthly savings. This tells you how many months it will take to recoup the upfront costs. If you plan to live in the home well past the point that the refinancing costs will be covered by the monthly savings, refinancing can make sense.

* See whether you can get better loan terms. If you made a low down payment or had bad credit when you bought your home, you’re probably paying for private mortgage insurance--which protects your lender, not you. If your credit has improved, or you’ve paid enough principal to boost your loan-to-value ratio, refinancing could allow you to drop the PMI, which could make it a good deal even without a lower interest rate.