Now may be a good time to refinance

(NBC) - Mortgage rates are at a record low, and homeowner looking to save money in this economy are asking if now is a good time to refinance. However, but it is important to address exactly what it means to refinance.

"Refinancing is taking the existing mortgage you have on your home and looking to recast or redo the loan itself," said banker Drew Miller, of Beneficial Banks.

The big question these days is, "Is now the right time to refinance?" The rule of thumb used to be to refinance if the interest rate on your mortgage dropped a full 2 percentage points. An example of this is a mortgage interest rate dropping from 6- to 4 percent. However, Miller said that is not the case anymore.

"The world has changed dramatically," said Miller. "Property values are much more expensive. People are taking out larger mortgages because properties are more expensive."

No matter what the difference is between your mortgage rate and what the rates have fallen to, Miller said the best thing you can do now is sit down and crunch the numbers.

"Know what their current monthly payment is, call a couple different lenders, figure out what their new payment would be, subtract one from the other, what's your monthly savings, convert that to what it would be on an annual basis," said Miller.

Miller said there could be significant savings for people who decide to crunch the math, but it is important to remember that refinancing is not the best option for everyone. Miller said it all depends on your individual circumstances.

"Certainly if your mortgage balance, you've paid it down, you've been in the house for 20, 25 years, it may not be worth it because the bulk of your payment is going to principals," said Miller.

Yet, it may be worth it if you have equity in your house, you have great credit and you plan to stay in your home for a while.