Interest rates on mortgages and loans are extremely low. These rates are the lowest they have been in decades. Along with this low interest rate comes colossal opportunity for owners of real estate to reduce their principal and interest payments. Determining whether or not it makes sense to refinance is dependent on your unique situation, as well as if you can save enough money through the refinance to justify the expense. The analysis is a relatively straightforward, but you should know the procedure so that you may benefit from renewing your mortgage.

The simplest way to determine whether or not to refinance your home is to look at your current mortgage and the respective time it will take to pay it off. Next compare this amount to what your payment will be after refinancing. If refinancing will reduce your payment and not add years or significant cost, then the refinancing your mortgage makes sense.

The simplest way to see if changing your mortgage makes sense from a quantitative point of view is to make a list that includes your payoff, your monthly payment, and the number of payments that have yet to be made. Multiply the number of residual payments by your current payment and record this number.

Under the previous number record the amount that you need to refinance, the period for the new loan, and the approximate mortgage payment. You can do all of these calculations quickly with a spreadsheet, or downloadable mortgage calculator. Make sure that you take into account the costs to refinance when doing your calculations, as well as origination fees, appraisal fees and transfer and escrow costs. Now repeat the same calculation as before, multiply the total number of payments by the monthly payment amount.

If you are updating your mortgage, but not pulling out any equity, the refinance makes the most common sense if you can lower your periodic payment, and if the entire amount paid (number of payments multiplied by the monthly payment) after the refinance is lower than the overall amount to be of the payoff your current mortgage. If the periodic payment is lower than your current payment, but the full amount is more, you have to choose if paying lower monthly outweighs the greater amount you will need to disburse. The opposite choice is needed if your payment increases but the full amount due decreases. In either case, check your calculations carefully as you come to a choice.

One thing to remember with the above calculations is that the money refinanced must equal your existing mortgage. If the refinance amount exceeds the amount presently due on the mortgage then a much more complicated analysis is desirable. For this type of analysis, you will need a spread sheet with present value and amortization calculations. If you are not comfortable with these types of calculations, consult a financial adviser or accountant to help with quantifying your choice.