With 5 year arms below 3% it is very tempting to think about refinancing.  Just remember re-financing also can involve a lot of fees.  This is why it is usually only worth it in the long run because it is only with time that those fees are saved through a lower payment.

There is however an easy way to accelerate payments and reduce interest.  The best way to reduce your home mortgage quickly is to participate in a 26 Payment Plan. Usually these plans are free and offered by all mortgage companies. In this plan instead of paying your mortgage once a month you will pay half the amount every 2 weeks. Since you are paying every 2 weeks you will end up making 1 extra monthly payment per year or 26 payments (13 monthly payments) per year.   By paying every 2 weeks interest does not build up all month long since you are paying more frequently.

I know that paying 1 extra payment per year can be difficult but the upside is that it will generally take 7.5 years off a 30 year fixed mortgage. If you use a mortgage calculator you will see that it will save you 10,000s of dollars.

My Email to the Credit Union

I currently have a 15 year fixed mortgage at 4.75%.  I have about 11 years left on the mortgage. I have a 26 payment plan and paying an additional $1,000 a month. Is it a good idea to try to refinance to a 4.25 to 4.35 % rate keeping a 15 year mortgage?

The Credit Union Response

Based on the current terms on your mortgage, I would not recommend a refinance, even if you could meet the qualifications to do so.

Your current rate is only 0.5% higher than our currently offered rate.   However, you would most likely pay at least 2-3% of the loan amount as closing costs.  This might be worthwhile if you had 30 years to amortize those closing costs.  However, you will be paying off any mortgage in 10-15 years, so you would not recover the up-front costs.

To summarize, I don’t see any advantage in refinancing.  You have a good loan, and your current practice of prepaying $1000 per months is very beneficial in terms of interest savings.  Again, even assuming that you could qualify for a refinance, my recommendation would be to stay with the program you have.

I hope this is helpful, and I would be happy to answer any further questions.

I know that paying 1 extra payment per year can be difficult but the upside is that it will generally take 7.5 years off a 30 year fixed mortgage. If you use a mortgage calculator you will see that it will save you 10,000s of dollars.