Fixed mortgage rates: How low will they go?

Fixed mortgage rates are at their lowest in six decades. Investors, scared off by eurozone woes, are piling money into US Treasurys, pushing interest rates down. The Federal Reserve has embarked on a program to lower rates even more.

So is it time to refinance – or should you hold out for them to decline a little more?

Individual circumstances vary, of course. But as a general rule, refinance when it makes financial sense rather than trying to hit the lows, mortgage experts say.

"Waiting for lower rates is like gambling," says Polyana da Costa, mortgage reporter for Bankrate.com, a financial-rate information website. "And in this case, it's probably not worth the risk. Rates usually fall slowly but they shoot up fast."

With fixed mortgage rates dipping below 4 percent for a 30-year loan, the math of refinancing is becoming compelling for many homeowners. Refinancings surged 11.2 percent last week, according to the Mortgage Bankers Association.

To figure out whether refinancing makes sense for you, figure out what it will cost. All those fees, appraisals, title insurance, and so on really add up. Ask your lender for an estimate of what those costs will be – or use calculations from the website of a national lender like Citizens Bank (under "Determine my rate," click "Mortgage."). Make sure to add in any mortgage points the lender charges.

Then figure out how long it will take before the money you save from the lower rate will pay back the costs of refinancing. (A personal finance program, like Quicken, includes calculators that let you figure this out.) If it's a year or less, then it's generally a good idea to consider a new low-rate loan.

But homeowners often rush into refinancing when it saves them a little money rather than waiting for rates to fall to the point where they can save serious sums, according to David Laibson, an economist at Harvard University in Cambridge, Mass. With two other economists, he developed a calculator that lets homeowners figure out when rates have fallen by enough that it doesn't make sense to wait anymore.

Based on its calculations, a homeowner with 25 years and $200,000 left on a mortgage who expects to live in the home for five more years and is in the 28 percent tax bracket should wait to refinance until rates fall below 3.6 percent

Given the precipitous drops homeowners have seen this past month, that rate might not lie too far away. Since rates for a fixed 30-year mortgage are already hovering around 4 percent, "you could conceive of another 50 basis points down in mortgage rates," says Gary Shilling, an economist in Springfield, N.J. and author of "The Age of Deleveraging."