(MONEY Magazine) – LISTEN! THAT THUD YOU JUST heard was mortgage interest rates hitting bottom, the lowest they've been since December 1977. Now, with the national average for a 30-year fixed-rate mortgage at 8.9% and rates as low as 8.25% in some markets (see Money Scorecard on page 24), it's time to decide whether to join the stampede of homeowners -- half of all current loan applicants, up from 15% a year ago -- who are trading in their old high-rate loans for new lower- ticket ones. It is tempting. For example, swapping a $100,000 mortgage at 11% for a new one at 9% will cut your monthly loan payment $148, from $952 to $804. Alternatively, replacing a 30-year loan with a shorter-term note -- as did Chuck and Bobbie Browning of Dayton, pictured at right -- can produce truly dramatic savings over the life of the loan. In October, the Brownings shucked the 30-year fixed-rate $123,000 mortgage they'd taken out at 10.75% three years ago in favor of a new 15-year, 8.75% loan with closing costs of $1,181. Though their monthly payment of $1,222 is now $72 higher than before, they will retire the debt 12 years sooner and save $192,859 in total payments. ''You don't need to be a brain surgeon to see that refinancing can make sense,'' says Chuck, 38, who manages radio stations WHIO and WHKO. But don't dally in your decision-making. While it's possible that mortgage interest rates will drop another one-quarter of one percentage point between now and late winter, the consensus forecast is that they'll rise again by next spring. ''Rates will pick up as the economy strengthens -- maybe as soon as April or May,'' says Robert Heady, publisher of Bank Rate Monitor, which tracks the industry. So should you refinance or not? Here's how to find the answer. First, set aside the conventional wisdom on refinancing, sometimes called the two-two-two rule. This principle says it makes sense to trade loans only if you have been in your home longer than two years, you expect to stay there for at least two years more, and your new interest rate is two percentage points below your current rate. Let's take the ''twos'' in order: -- You must have lived in your house two years. This is based on the natural tendency to think that, after paying thousands of dollars in closing costs, you should hang on to the note long enough to get your money's worth. That logic is faulty. You cannot recover money you have spent. Your only hope is to minimize future costs. If refinancing makes sense on other counts, don't wait unless you think interest rates will drop a lot more, which is unlikely. -- You must stay put at least two more years. Another cliche. In fact, if the difference between your new and your old loans' interest rates is big enough, you can recoup the costs of refinancing in 12 months or less (see the chart on the following page). -- Your new rate must be two points lower. Not so if you plan to remain in your house for more than a couple of years (the average homeowner stays seven). If you don't move until 1996, for example, you can come out ahead refinancing for a one-percentage-point improvement in rate, even with closing costs as high as 3% of the loan. Instead of relying on misleading rules of thumb, concentrate on your motives: Are you thinking of refinancing mainly to cut your monthly payment, or do you want to reduce the total lifetime cost of your mortgage? If your aim is to trim the payment, the decision is straightforward. Shop for the best loan terms, considering not only the interest rate but also the transaction cost -- that is, the sum of all fees, closing costs and so-called points (each point is 1% of the loan amount). ''You can usually get a lower rate by paying more points, and vice versa -- like 9% and three points, 9.125% and two points, and so on,'' says Paul Havemann of HSH Associates, a Butler, N.J. firm that tracks loan rates. Then, for each loan you are considering, figure how long you would have to stay in your house before the total of your monthly savings would offset the closing costs. The calculation is simple: divide the dollar amount you would save on payments each month into the total transaction cost to find the number of months until you break even (the chart above shows the maximum time needed to recoup your costs, assuming inflation of 4%, when you're comparing two 30- year fixed-rate loans). If you don't think you'll be in your house long enough to reach the break-even point, forget the whole deal. If you'll be there only a year or so past that point, go for the loan that reaches break- even fastest -- often the one with the lowest transaction cost -- so as to maximize the number of months beyond that critical juncture when you'll reap savings. But if you plan to be in the house for, say, three to five years past break-even, choose the loan with the lowest monthly payment -- even if you have to pay a few extra points or higher closing costs to get it. That lower payment will usually give you greater savings over the long haul. If your overriding goal is to cut the lifetime cost of your loan, your decision is more complex. To see why, suppose you had a $100,000, 30-year fixed-rate mortgage that you took out 10 years ago at 10.5% (monthly payment: $915). Suppose further that you could refinance to a new 30-year loan at a fixed 9% (monthly payment: $737) with transaction costs totaling $1,780. Since you would save $178 a month in payments, you could break even in a scant 10 months. But since you would also be extending your payments by 10 years, you will actually wind up spending $47,500 more for the lower-rate mortgage over its lifetime (ignoring, for the moment, the effect of inflation). The surest way to reduce the overall cost of such a mortgage is to refinance to a shorter-term loan. In the case described above, for instance, if you switched instead to a 15-year mortgage at the national average of 8.56%, your monthly payment would drop only $10 to $905, but you would pay off the note five years sooner and save $54,920 altogether. This strategy makes sense if you can afford the payments and want to be debt-free faster because, for example, you plan to retire in a few years. Regardless of whether you refinance for short- or long-term savings, look for ways to reduce your cost and hassle. If you live in one of the 36 major markets covered by HSH, you can zero in quickly on the best deals by ordering a weekly list of mortgage offers in your area ($20; 201-838-3330). Or, you can let someone else's fingers do the walking by hiring a mortgage broker to find your loan for you. Some brokers do not charge you anything directly, since they collect a portion of the points paid to the bank. Others levy a finder's fee of as much as 1%. If you deal with the lender who wrote your original mortgage, you might be able to shave the cost of title insurance by 20% to 25% by updating your existing policy instead of taking out a new one. And if your old mortgage required private mortgage insurance because your down payment was less than 20%, you may be able to drop the PMI the second time around if your home has appreciated in value or if you have built up more than 20% equity in the house. The savings? The equivalent of a quarter-percentage-point cut in interest rate, or about $27 a month on a 30-year, $150,000 loan. Finally, even if you can't swap mortgages, you can still pare your overall cost by taking advantage of the seldom used option -- permitted with most home loans -- of prepaying extra amounts of principal each month. ''For example,'' says Peter Anderson, author of the pamphlet Home Buying and Mortgage Finance ($16.98; 800-468-7331), ''if you add just $23 to the $658 you pay monthly on a $75,000, 10% fixed-rate mortgage, you'll retire the 30-year loan in only 25 years and save $32,580. Not bad for just $23 a month.''

CHART: NOT AVAILABLE CREDIT: DRAWING BY VALERIE PIZZO BASED ON A GRAPH BY JERSEY GILBERT CAPTION: HOW SOON WILL YOU BREAK EVEN? To estimate how long you must stay in your house to recoup the cost of trading in your old 30-year fixed-rate mortgage for a new one at the national av erage of 8.9%, find the difference between your old and new inter est rates on the left-hand scale and trace a line across. On the bot tom scale, locate your total closing costs as a percentage of the new loan amount and trace a line up. Where the two lines intersect shows the maximum time to break even.