This year has seen record low mortgage rates. While current mortgage rates have risen slightly, they remain at near historic lows. For those who can take advantage of these low rates there is a great opportunity to refinance. How then should a home owner make the decision to refinance?

Calculating the Savings. Calculate the amount of interest you will pay for the remainder of the current mortgage loan, subtracting out any prepayment penalties, if there are any. Subtract from this the interest and fees on the new loan. Consider though if you have been making payments for several years. As an example, the original loan was for a 30 year mortgage and the borrower has made payments for 6 years. With 24 years remaining on the current loan you will have to see a significant difference in the rate to justify going back to a 30 year loan. In fact, in this scenario a 20 year option may be better. Make sure that you don’t include the interest that’s already been paid on the current loan. This has been paid and it is gone.

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