• Use the break-even method to calculate your refinance savings.Calculator image by Alhazm Salemi from Fotolia.com
  
  

Consider the Loan Amount and Costs

• The common recommendation used to be that homeowners should refinance for at least a 2 percent drop in their interest rate. But some experts like mortgage banker and Equity Now President Michael Moskowitz, quoted on ABCnews.com, say homeowners with higher loan amounts and relatively low refinancing costs may save more over time even if their new rate drops by only 1 percent or less.
  
  

Consider the Break-Even Period

• The Federal Reserve recommends that homeowners calculate their break-even period to determine the number of months it will take to pay off the cost of refinancing and begin benefiting from a lower interest rate. Homeowners should avoid refinancing if this period is longer than the number of years they plan to live in the home.
  
  

Bottom Line

• It is no longer necessary for homeowners to refinance with at least a 2 percent drop in their interest rate. Instead, they should consider their refinancing costs and divide this by their monthly savings to determine if they will remain in their homes long enough to benefit from the refinancing.