Whenever interest rates drop, homeowners have the opportunity to save money. Lower interest rates generally translate into lower mortgage rates. And refinancing your mortgage at a lower rate can save you a few bucks on every monthly payment.

So when does it make sense to refinance?

Well the interest rate cut required to come out ahead will vary dramatically, depending on how long you plan to hold the new mortgage, how many years you've already paid on the current one, and the available opportunities for cutting closing costs.

So get out your calculator. Simply divide all the costs of refinancing by the monthly savings with your refinance. If you plan to be in the home at least as many months as it will take to pay off the new closing costs with the monthly savings, this will show you if it makes sense for you.

One catch—to cover closing costs you have to shell out today's money, but the interest saving you capture in return arrives in the future.

Do the math first.

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