You can lower your payment and maybe retire your mortgage sooner. Thinkstock By the editors of Kiplinger's Personal Finance From Kiplinger's Personal Finance, February 2015 Step 1 Check www.mortgagemarvel.com to see how low a rate you could get and how much you’d pay in closing costs. Forget the rule of thumb that to refinance your mortgage you need to reduce your rate by two percentage points. The question is whether you will stay in your home long enough to recoup the closing costs with savings on your monthly payments. You will need at least 5% equity in your home to qualify, and lenders may require a minimum credit score of 660 if you have less than 25% equity. The higher your score, the better your rate.See Also: Our Special Report on Mortgages and Refinancing Step 2 For a rough idea of how long it will take to break even, before you will realize any savings, subtract the new monthly payment from your current one and divide that into the total closing costs. For a more accurate picture, use the Mortgage Professor’s refi calculator, which also factors in unrealized interest on your closing costs and lost mortgage-interest tax deductions, resulting in a longer break-even period. Say you have a 30-year, $200,000 mortgage at 4.8% and can refinance at 4%. According to the calculator, you’d lower your monthly payment of principal and interest from $1,146 to $984, assuming you finance the estimated $6,000 in closing costs. It would take 70 months to break even. Step 3 You can lower your rate even more and cut the payoff time in half with a 15-year mortgage, but your monthly payment won’t be as low. Or ask the lender to set a payback period equal to the number of years remaining on your old mortgage, and it will adjust the payments to reflect the term. The payoff You’ll lower your payment and maybe retire your mortgage sooner.