Why Refinance?
Or maybe you want to shorten the period you’ll be making payments. You can do that by swapping your current 30-year mortgage for a 15-year loan or one of practically any other duration. If rates have come down enough, you may even be able to achieve this with little or no increase in your monthly outlay.

It’s also possible to finance your closing costs as part of the amount you are borrowing or eliminate them altogether by agreeing to pay a somewhat higher interest rate.

First, look at the APR, or annual percentage rate. This is the total charge for credit calculated on an annual basis and stated as a percentage. It includes not only your interest rate but also such one-time loan fees as discount points that increase your overall costs.

Refinancing a fixed rate for an adjustable rate mortgage (ARM) can save you even more a month. Today’s 1-year adjustable rate of about 6.5 percent would cost you only $1,516.97 on a $240,000 loan.

Tax Cost: Multiply your monthly savings by your combined state and federal tax rate.

Net Savings: Subtract your tax cost (because the cheaper loan gives you a smaller tax benefit than the previous loan) from your monthly savings.

Break-Even Point: Divide your total costs by your net savings to determine how many months it will take to pay off the cost of refinancing.

To obtain bottom-line precision on calculating your savings, especially when you shorten the term, you need loan-amortization schedules available on Web-based mortgage calculators or a patient mortgage broker or lender who’ll churn out all the numbers.

Consider someone who wants to trade in a four-year-old loan on which he has already paid $25,000 in interest. By starting over, he could be paying more in interest for both loans than if he had stuck with the old one, depending on the difference in rates. You should do the math before making a final decision.