Better to pay down or refinance?

Better to pay down mortgage or refinance?

Weigh the pros and cons and crunch numbers carefully before you decide.

By Don Taylor of Bankrate.com

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more on Bankrate

• Pay off your mortgage earlier
• Compare mortgage rates in your area
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Question: We have a 30-year fixed-rate mortgage with a rate of 4.875%. We originally borrowed $165,000. We still have 25 years left until the loan is paid off. Just a year into the mortgage, we placed it on biweekly, or twice-monthly, payments. We also have been paying toward the principal as much as possible and now have the principal down to $124,000. (Bing: What are interest rates on 15-year mortgages right now?)

Our goal is to pay it off, if possible, in five years. Some people have told us the rate of interest is on the high side and urged us to refinance since we have good credit. I feel it would probably cost us about $5,000 to refinance. So, if we pay it off in five years, would it really be worth paying the extra fees? What is your advice? — Kendi Curtail
Answer: You would pay the closing costs and refinance at the lower rate if you plan on staying in the house. You expect that your total interest expense, including closing costs, will be lower if you refinance than if you don't. Personally, I'm not a fan of biweekly mortgage payments. You don't need that crutch if you're making the additional payments on your own. I'd urge you to avoid signing up for the biweekly plan if you do refinance.
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Up Next 0 Money Matters: Should you switch to a shorter-t... It wasn’t that long ago that a 15-year mortgage was considered a fringe product, suitable for a relatively small number of buyers and homeowners looking to refinance. But no longer. Share Money Matters: Should you switch to a shorter-term mortgage? It wasn’t that long ago that a 15-year mortgage was considered a fringe product, suitable for a relatively small number of buyers and homeowners looking to refinance. But no longer. Date 11/8/12, Duration 1:41, Views 2009 Video by: WMUR Manchester | Click here to visit WMUR.com Now Playing Up Next Video Added Money Matters: Should you switch to a shorter-term mortgage? WMUR Manchester Date 11/8/12 1:41 Tooltip Information: Money Matters: Should you switch to a shorter-term mortgage? Video by: Description: It wasn’t that long ago that a 15-year mortgage was considered a fringe product, suitable for a relatively small number of buyers and homeowners looking to refinance. But no longer. Rating: 3 Views: 2009 Now Playing Up Next Video Added 15-Year Fixed vs. 30-Year Fixed CNBC Date 12/28/12 1:52 Tooltip Information: 15-Year Fixed vs. 30-Year Fixed Video by: Description: Sarah is interested in refinancing and wonders if it is worth it to get a 15-year fixed over a 30-year fixed? Rating: 3.28 Views: 4158 Now Playing Up Next Video Added Take Advantage of Low Mortgage Rates NBC Chicago Date 7/18/12 2:37 Tooltip Information: Take Advantage of Low Mortgage Rates Video by: Description: A mortgage expert joins Stefan Holt on the morning show to discuss low mortgage rates, buying a home and refinancing! Rating: 4 Views: 11940 Now Playing Up Next Video Added Time to refinance home mortgages is now WPBF West Palm Beach Date 7/13/12 2:13 Tooltip Information: Time to refinance home mortgages is now Video by: Description: As home mortgage rates are at their lowest level in decades, lenders say now is the time to refinance is now. Rating: 4 Views: 5680

I don't know how realistic it is for you to expect to pay off $124,000 over the next five years. While impressive, you only paid down just $41,000 over the last four or five years. The very aggressive effort to pay off the mortgage may not be realistic unless your financial circumstances have changed.