Question: Last week’s Real Estate section reported that mortgage rates around the country fell, "with rates on 30-year mortgages dipping to the second-lowest level of the year, pushed down by further signs of economic weakness."

We are interested in refinancing our current 7-1/2 percent mortgage, and want your advice on how to go about doing this. What costs will be involved, and how do we determine whether refinancing makes sense?

Answer: For your New Year's resolution, you should resolve to thoroughly investigate the possibility of refinancing.

When you refinance, it is almost as it you are going to a brand new settlement. The only difference is that there is no buyer or seller present at closing, and no real estate brokers will be involved.

You should shop carefully for interest rates. Determine what the various rates will be for a fixed 30-year mortgage, and compare those rates to a fixed 15-year mortgage as well as to an adjustable mortgage transaction -- called ARMs.

We all predicted that interest rates would be as high as 7 percent by the end of the year -- and thankfully we were wrong. But who knows what next year will bring, and if you can save a little more than one full percent by refinancing, that might make sense.

Notice that I said "might."

When you go to the lender, determine exactly what closing costs you will have to pay. Consumers often do not understand that the lender -- whether it is your current lender or a new one -- will want a brand new title search, may want a new survey (especially if you made major improvements and added to your existing house, and you will have to pay for a new lender's title insurance policy). You should insist on obtaining what is known as a "reissue rate" so that you will not have to pay the full cost of this insurance.

Make a spreadsheet of all of the expenses. Obtain a mortgage amortization table so that you can determine exactly what your new monthly payments will be. You can find these tables on the web by looking for "amortization tables" on your favorite search engine.

Let me give you an example.

Your current loan is approximately $200,000.00, and is at an interest rate of 7-1/2 percent. Your monthly payment of principal and interest (not including taxes and insurance) is $1,398.43.

If you obtain a new loan in the same amount at 6.25 percent, for example, your new monthly payment of principal and interest will be $1,231.44, for a monthly savings of $166.99 (or $2003.88 on a yearly basis. In addition, since for the first few years, the majority of the monthly mortgage payment goes to pay interest, your refinance loan -- albeit for a smaller monthly payment -- will provide you with slightly more tax deductions.

This is all based on obtaining a fixed 30 year loan.

There are, of course, many different loans currently available -- ranging from adjustable rate (ARMS of 1, 3 or 5 years), 15 year terms and even no-interest loan programs. In my opinion, however, the fixed 30 is the best loan to take in today’s market conditions.

Why? There is security in knowing that your monthly mortgage payment will not go up a year or two (or three) from now. Some ARMS currently at rates under 6 percent toward can -- over time -- go as high as 11 or 12 percent.

Of course, much depends on your own personal circumstances. If, for example, you only plan to keep the current house for three years or less, then clearly a three year adjustable rate could make sense -- if that rate is less than a fixed 30.

However, if you intend to keep the house for more than three years, in the fourth year you may find yourself paying a higher rate, with the prospect of even higher mortgage payments as the years roll by. This should not be acceptable, especially when you can lock in now for a lower rate for a long period of time.

You should sit down with all of the facts, and spend an evening with your calculator and your amortization book (or your computer). Basically, do the numbers.

We used to have a rule of thumb that one should refinance only when rates drop at least 2 percent from your current mortgage. With the tremendous volatility of the financial marketplace, this 2 percent rule of thumb does not always makes sense.

More importantly, there are many other reasons to refinance other than lower mortgage payments. As of January of this year, credit card companies increased their minimum monthly payment from 2 to 4 percent of the outstanding balance. Mortgage interest is deductible while credit card charges are not. If, for example, you currently owe $5000 on your charge card, consider increasing your refinance mortgage by that amount and pay off the credit card debt.

In the past few years, many home buyers obtained what is known as an "80-10-10" loan. This means that they took out a first deed of trust (mortgage) in the amount of 80 percent of the purchase price, a second mortgage in the amount of 10 percent, and paid cash for the remaining 10 percent.

These second trusts carry a higher rate of interest than the first. It is possible to obtain a brand new refinance loan which would consolidate and pay off your existing two mortgages, and thus lower your monthly payment.

There are many reasons to consider refinancing, and with rates currently so low, this is the time to start your research. Procrastination may be hazardous to your pocketbook.