REFINANCING YOUR MORTGAGE may seem irresistible with the current low rates. Last week the national average for a conventional 30-year fixed rate loan was 7.47%, with 1.8 points. But there?s more to refinancing than just getting a lower interest rate. You need to make sure the costs of the new loan don?t far outweigh the benefits.

The old standard is that you should only refinance if your current interest rate is two percentage points higher than the new rate. However, that benchmark doesn?t really apply anymore. You may be able to justify a much smaller decrease -- even lower than one percentage point -- if you are planning to live in the house for many years to come. In that case, you?ll have much more time to recoup a more modest reduction in your rate.

Say you took out a $250,000, 30-year fixed rate mortgage last June at a rate of 8.32%. Paying $1,890 each month, you have a $247,870 balance left on the loan after one year. With rates down to around 7.5%, you want to see how much you could save by refinancing. For a 30-year fixed rate mortgage, Bank of America quoted the following programs on its Web site: 7.5% with 1.125 points and 7.75% with no points. Using the SmartMoney Interactive Should You Refinance Worksheet, we plugged in all the data and found that at the 7.75% rate you?ll reduce your payments by $114 each month and save $1,537 in interest. But what about that laundry list of added refinancing costs, such as title insurance? We factored in $2,500 for those additional fees. With your monthly savings, it will take 22 months to recoup these costs. Many lenders will let you package the closing costs into the interest expense of the loan and pay nothing upfront. But this generally means paying a higher rate.

To see if you can truly save, use the Should You Refinance Worksheet with rates from the lender of your choice. The results may show that you don?t plan on living in your house long enough to justify the costs and hassle of refinancing.