"A penny saved is a penny earned," advised Benjamin Franklin. Or to put it not quite so memorably: "Cutting expenses produces the same budgetary result as earning more money." Actually, because income today is taxable (something old Ben didn't have to worry about), cutting expenses can actually produce a better bottom-line result than earning more.

For many of us, one of the largest expenses of life is the cost of interest paid on a home mortgage. The good news is that, if economic conditions are right, implementing the "Franklin principle" with a mortgage is fairly easy — and it can pay off big. Putting in just a few hours of research can result in a huge reduction in your interest expense. Over time, the effect will be roughly the equivalent of a significant increase in income.

So how do you save all those "pennies"? It involves refinancing your mortgage at the right time to get a lower rate and/or a shorter term. You simply pay off your existing loan with the proceeds from a new, lower-cost loan. Refinancing can reduce your overall interest expense by tens of thousands of dollars, putting you in a much better long-term financial position.

With most refinancing situations, a key piece of information in deciding whether to refinance is how long it will take to "break even." In other words, at what point will you recoup the upfront costs of refinancing? These upfront costs include legal fees, the cost of an appraisal, the price of a title search, and, of course, some profit for the mortgage company. Usually, the lender will charge a "one-point origination fee." A point is equal to 1% of the loan amount. (You might also choose to pay additional points in return for a lower interest rate on your loan.)

Once you shop for the best deal by comparing closing costs at various lenders, use a mortgage calculator to calculate what your new monthly principal and interest (P&I) payment will be. If your payment is going down (it might go up if you're moving from a 30-year loan to a 15-year loan, but this is actually a good thing as we'll explain shortly), subtract the amount of your new P&I payment from your old one. This tells you how much you'll save each month. Divide this monthly savings into your closing costs. This tells you how many months it will take before the refinancing pays for itself (tax considerations aside). That's your break-even point; after that, you're saving every month.

Example: If your new monthly payment would be $140 less than your current one, and if your total closing costs (including one point) were $2,800, it will take 20 months before your savings equal your expenses ($2,800 divided by $140). After that, you'd be ahead an extra $140 each month.

It can get confusing trying to compare different proposals (lenders have lots of different ways of packaging loans), so here's a handy way to convert points into a percentage rate: treat each point as if it added ¼ of 1% to your loan rate. Example: a 6% rate with one point is roughly the same as a 6¼% rate with no points.