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Homeowners have been on a refinancing binge in the past year, scrambling to get out of their adjustable rate mortgages and into fixed rate mortgage, or FRMs. Refinancing accounts for 43% of mortgage activity, while only 2.5% of new applications are for ARMs, according to the most recent Mortgage Bankers Association



But refinancing isn't always the right move.

Here's why: Many homeowners refinance to take advantage of a lower rate or avoid an anticipated interest rate hike on their ARM. But refinancing can be costly. Closing costs average 2% to 4% of the loan amount, and it can take a while for the savings from lower monthly payments to pay back the upfront costs of refinancing. If you sell the house before you've had the chance to recoup those costs, refinancing was a bad idea.

So how do you calculate the break-even point where the savings from a refinancing outweigh its costs? If you are refinancing from one FRM to another because of lower rates, you can crunch the numbers with the help of the online Refinance Interest Savings


at Enter the details of your current loan and your new mortgage, and the calculator will tell you how much lower your monthly payments will be and when you stand to break even.

Say you have 15 years left on a $200,000 mortgage at 8.5% on a home originally worth $250,000. You want to refinance to take advantage of the current lower rate of 6.22% on a new 15-year mortgage that covers the remaining balance of your original loan. Your closing costs total $3,000. According to the calculator, you would save a little more than $200 in monthly payments, and you'll break even after 15 months.

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The decision to switch from an ARM to an FRM, however, depends on more than just when you plan to sell the house. It also hangs on how and when your rate will adjust. Rates for a 5/1-year ARM (a popular type of ARM) are currently 0.08 percentage point higher than rates for a 30-year FRM. But as recently as two months ago, rates on ARMs were 0.5 percentage point lower, and had been for some time. The two types of mortgage rates are influenced by different market forces.

Take a look at your ARM to determine how much your rate can jump from year to year and what your rate is based on. If the rate on your ARM is likely to remain lower than what you can get with an FRM, consider delaying refinancing, especially if you're considering selling the house in the next few years.

If you are in the fifth year of a 5/1-year ARM, your rate is about to adjust. Say you have a 0.5% cap on annual rate adjustments and your original rate was 5.5%. Even though ARMs currently sit at 6.57%, your rate will only rise to 6% for next year. Refinancing with a 30-year FRM right now would carry a rate of 6.49%, according to the latest rates from

. A 0.5% difference in rates on a $200,000 mortgage translates to $78.44 a month, or $941.28 a year, more in payments.

By waiting to refinance, you'll save $941 in extra payments and also save $3,000 in closing costs. And even if rates shoot up again next year, your 0.5% rate cap will keep you at the same monthly payment as if you had refinanced to the FRM at 6.49%, yet without any closing costs. To see how your numbers would look, check out the online


calculator from

It may be tempting to try and take advantage of lower interest rates, but remember that there's more involved in a refinance. Crunching the numbers before deciding whether to refinance will put you in a better position to make the right call.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.