When the Fed cuts its benchmark interest rate by the single largest amount in more than 20 years – then cuts it again little more than a week later – people in debt tend to notice.

And that’s when the phone starts ringing on Brian Occhipinto’s desk.

“We love the phone calls,” said Occhipinto, mortgage specialist at Peoples Bank in Lawrence. “The Fed brings it to your attention – that mortgage rates may be going down – but for each person or family, it’s an individual decision.”

That’s because even though the Fed’s decisions don’t directly affect mortgage interest rates, all the talk and focus on federal financial policy tends to get homeowners thinking about reducing their monthly mortgage payments.

And it’s no surprise, considering that interest rates on 30-year fixed mortgages – now about 5.6 percent – recently have been at their lowest level in four years.

But keep in mind that lenders continue to be more selective about who gets the best rates, or even who qualifies for a loan, amid a credit crunch spurred by a rash of defaults on so-called subprime mortgages.

Factor in growing concerns about a recession and other economic uncertainties, and homeowners have plenty to think about.

With all that in mind, here are three scenarios that area homeowners may find themselves in regarding their home mortgages, plus another factor that they may want to consider as they mull whether to seek savings – or boost financial security or improve simple peace of mind – involving what typically are the biggest debts of their lives:

Long to short

Say you bought a $250,000 home in 2001, snagging an interest rate of 6 percent. You managed to put down 20 percent for a down payment, allowing you to avoid paying private mortgage insurance.

You’re paying $1,199 in principal and interest each month, and you have 23 years to go. Should you refinance to a 15-year, fixed-rate loan?

Consider the numbers:

¢ New 15-year interest rate: 5.125 percent.

¢ New monthly payment (principal and interest): $1,428, on a loan amount of $179,200.

¢ Monthly increase: $229.

¢ Interest savings: $73,740 over life of loan.

The increased cost – don’t forget anticipated closing costs of about $2,100 – could turn many people off, Occhipinto said. But it’s simply a matter of priorities.

“Can you afford another $229 a month?” he said. “The pluses: You save tons in interest. The negative? Your payment goes up.

“It’s almost always a good idea to do a 15-year, but it’s all whether you can afford it.”

30 to 30

So you don’t want to refinance to a shorter term; paying off your home in 30 years is just fine, thanks.

So, say you bought a home five years ago, taking out a 30-year, fixed-rate mortgage at 6.5 percent.

That’s a monthly payment of $1,264 for principal and interest – and you could add $87 a month if you needed private mortgage insurance.

Refinancing your $187,200 balance to another 30-year fixed loan, at 5.625 percent, would cut your monthly payment to $1,078 for principal and interest.

That’s a savings of $186 per month – or $273, if you had private mortgage insurance, which now would be eliminated. Factor in $2,100 in closing costs, and you’d recoup your costs within 12 months.

But you’d also be making mortgage payments for another five years, provided you were planning to stay in your home for the next 30 years. Most people, however, don’t think that way.

“They know they’re not going to be in it 30 years,” Occhipinto said. “The mentality is: ‘I just want to lower my payment.’ “

ARM’s length decision

How about an adjustable-rate mortgage, or ARM? Someone who financed a home purchase in early 2005, at an interest rate of 4.5 percent, would be paying $1,013 in principal and interest until 2010. That’s when this particular loan would reset its rate, possibly to as high as 6.5 percent, and then again in ensuing years to a cap as high as 10.5 percent annually.

Refinancing the loan balance of $189,900 to a 30-year, fixed-rate loan at 5.625 percent would boost the monthly payment to $1,093, up $80 a month.

That’s another $1,920 over the next two years, plus anticipated closing costs of $2,100.

Tammy Ford, another Peoples mortgage specialist, has spent 20 years in the business as an underwriter, manager and sales representative, and she still doesn’t know when refinancing such a loan would have the best payoff.

“Is it worth it? It depends on how long you’re going to live in the house,” among other factors, she said. “If you think you’re going to live in the house for a while, and you can just go to a fixed and not stress about it all the time, then yeah, maybe it is worth it.”

No more extra credit

Finally, homeowners need to consider how their creditworthiness might affect their sought-after interest rates.

Since Jan. 1, Ford said, banks have been taking various credit scores into account when offering mortgages, and holding off on quoting rates until they know an applicant’s score.

And the numbers matter. Last week at Peoples:

¢ A 720 score would qualify for a 5.625 percent interest rate on a 30-year fixed loan.

¢ A 660 score would qualify for a rate of 5.875 percent.

The difference? How about $33 a month, and $11,800 total over the life of the loan.

“It’s huge,” Ford said.

Her advice: Before shopping around for rates at different banks, be sure to check your score by logging on at www.annualcreditreport.com. Having 10 different banks pull your credit score 10 different times could bring your score down, she said.