Mortgage interest rates are about as low as they can get. With such low interest rates it may make sense for you to consider refinancing your existing mortgage and save hundreds of dollars per month in the process. But how do you know when it is the right time to refinance your mortgage? To find out if the time is right there are a few analytical steps you need to take. 

Step # 1 Add up mortgage refinancing costs
First obtain a list from the mortgage company of all of the estimated fees associated with the refinancing. These include:
points, loan origination fees, application fees, legal fees, title fees, appraisal fees, inspection fees, credit report fees, recording fees and ancillary fees such as overnight fees, administration fees etc.

Step # 2 Calculate how much you are saving each year on your mortgage payment

Step # 3 Estimate lost tax deductions
Multiply your annual interest savings by your effective federal and state tax rate. Most individuals have a combined effective tax rate of 30%. For example, if your annual interest savings is $1,000 you will lose $300 in tax deductions.

Step # 4 Subtract your lost annual tax deductions (Step # 3 amount)  from your annual mortgage payment savings (Step #2 amount).
This will give you your net annual savings

Step # 5 Divide your total costs (Step # 1 amount) by your net annual savings (Step # 4 amount)
This will give you the number of years it will take for you to break even on the refinancing.

Obviously the shorter the time period to break even, the better. If you can break even in five years or less you should jump at refinancing.