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I have 5 years left on my 15yr 4.75% mortgage. Are there any mortgage options that I could refinance to and actually save money or should I just focus on paying more each month?

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Do you have a particular reason for wanting to pay off the loan? If there's only 5 years left, paying early doesn't net you a whole lot (see 'total universe' below) especially after you factor out deductability for what interest you are paying. –  Chuck van der Linden Jul 16 '11 at 7:58

4 Answers 4

If you had originally borrowed $100k at 4.75% for 15 years, the last 5 years would include a total of $3,300-$3,500 in interest payment. That is the total universe of savings available to you if you were able to get a 0.0% mortgage.

Unless the mortgage is huge, I think that in most scenarios the upfront closing costs, taxes and other fees would immediately exceed any savings.

If you have the money, pay it down. Otherwise, keep on truckin' -- you have 60 short months to go.

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+1 for "total universe of savings available to you" that is a great way to look at it –  Justin Ohms Jul 15 '11 at 16:50

You probably won't save much, if anything at all, by getting another fixed-term mortgage.

The last part of a mortgage is mostly principal payments. If you borrowed $200k (guessing) at 4.75% then during the last five years you'll pay about $10.5k in interest, as opposed to $41.7k in the first five years and $27.9k in the second five. Another fixed rate loan won't get you a whole lot lower than 4.75%.

If you can score a teaser rate (say 2.5% for the first five years) on the balance at the beginning of year 11, and pay the same amount that you were before ($1,555) then you'd knock out the mortgage in 57 months and save yourself a little under $5k. If the refinance costs only a few hundred, then you might make out.

Anyway, you may find other similar options that have a low teaser rate but (goody for you) you won't be around long enough to see it jump up. Just watch for prepayment penalties.

I'd probably just bump up my payments, though. I went through a refinance and I felt like my hand was forced a lot in that process, but your mileage may vary. :)

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Another option would be to not refinance but also not pay any extra each month but to continue as you are making the existing payments and just put the "extra" you would have paid aside in an investment of some type (something you are comfortable with)

This as the added benefit of not tying up this extra money in your house should you need it in the next few years for something else.

You would then have the option in 2 or 3 years of continuing on this path or closing the investment and paying off the remaining principal in one lump sum.

If nothing else that big payment would be a really fun check to write.

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You don't say how long your mortgage has to go until it's paid off, but presumably it's only five or ten years. Hopefully that means your payments now represent a smaller fraction of your income than they did ten years ago. That means your risk level may have changed. How bad would it be for you if your mortgage payments went up by 50%? Would it be disastrous, or could you survive by some means.

If higher mortgage payments wouldn't break you, now may be the time to look at a variable rate mortgage. Variable rates are typically than fixed rates on average, because you are assuming some of the risk. Rates are probably going up over the next five years, but they are probably going to be less than 4.75% on average - otherwise the banks wouldn't be offering 4.75% 5 year fixed rates. The downside is that rates MIGHT go up to much more than 4.75%. So you need to be in a position where you can take the worst the markets might throw at you - but if you can, then on average you will come out ahead.

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From the OP: "5 years". –  gef05 Jul 15 '11 at 14:05
    
I wasn't sure if that was five years until the fixed term runs out, or 5 years until the mortgage is paid off. –  DJClayworth Jul 15 '11 at 14:41
    
@ DJClayworth. Got it. –  gef05 Jul 15 '11 at 18:22

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