IF INTEREST RATES have fallen since you took out your fixed-rate mortgage, you may find it’s worth refinancing, which involves swapping your current mortgage for one with a lower interest rate. But check that it really is worthwhile.

To that end, you need to make an apples-to-apples comparison. Let’s say you have had your current 30-year fixed-rate mortgage for six years, so what you now effectively have is a 24-year loan. If you refinance and replace that 24-year loan with a new 30-year loan, you will lower your monthly payment, even if the mortgage rate is exactly the same. The reason: You’re taking your current principal balance and spreading its repayment over six additional years.

Instead, to see how much you are truly saving every month, compare your current payment to the payment on a hypothetical 24-year loan at the new, lower interest rate. You can calculate the latter by playing around with the mortgage calculator at

Next, take the expected closing costs for the refinancing and divide it by the reduction in your monthly payment. That will tell you how many months it’ll take to break even. For instance, if the closing costs are $4,000 and you’ll save $150 a month, it will take you some 27 months to break even. As long as you don’t expect to move before the 27 months are up, refinancing probably makes sense.

When refinancing, consider taking out a mortgage that will be paid off by the time you retire, and preferably earlier. In the above example, where you have 24 years left on your current mortgage, you might opt for a 20-year or 15-year loan.

What if you find it isn’t worth refinancing because your remaining mortgage balance is fairly small? Consider taking out a home equity line of credit—often called a HELOC—and using that to pay off your current mortgage. HELOCs are cheap to set up and the rates are typically low, in part because they are priced off short-term interest rates. There is a risk that the rate on your HELOC could increase. Still, if your mortgage is small and you expect to have it paid off within the next three or four years, that might be a risk worth taking.

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