Meltdown 101: Is It Time to Refinance a Mortgage?

With mortgage rates sinking to the lowest level since the early 1960s, homeowners around the country are giving themselves an early holiday present: a refinanced mortgage with lower monthly payments.

Should you be doing the same?

The depends mainly on what rate you have now and whether you're planning to move anytime soon. Experts advise taking a careful look at your options before you jump in.

Mortgage brokers were quoting rates as low as 4.5 percent to 4.6 percent this week, a day after the Federal Reserve took extraordinary steps to boost the troubled U.S. housing market and slumping economy. The national average on 30-year fixed mortgages stood at 5.18 percent on Thursday, just over Wednesday's average of 5.06 percent, which was the lowest number since the early 1960s, according to financial publisher HSH Associates.

Here are some answers to common questions about refinancing mortgages.

Q: How much does refinancing cost?

A: It can cost several thousand dollars, but there are ways to make upfront charges invisible to the borrower.

Typically there is a fee that goes to the mortgage broker or lender, plus fees for title insurance, a new appraisal, document processing and other charges. Often, mortgage brokers or lenders can create the appearance of a "no fee" mortgage by adding the costs to a total loan amount or charging a higher interest rate.

Q: So will refinancing my home save me money?

A: That depends on how soon you want to sell.

Let's say you have a $200,000 loan. If you're able to cut your rate from 6 percent to 5 percent, your monthly payment will drop from about $1,200 to about $1,075, so you'll be saving $125 a month. If you have refinancing fees of $3,000, it would take two years to break even — so the refinancing deal is worth it only if you plan to stay in your place longer than that.

"Don't get stars in your eyes based strictly on the interest rate or based on how much money you think you're going to be saving every month," said Kevin Iverson, owner of Reed Mortgage in Denver. If it doesn't make economic sense, he says, "don't do it."