Refinance to 15-Year Loan Unless You Need Cash

Dear Dr. Don,

I have a mortgage loan of $274,000, and I would like to refinance. I currently have a 5%, 30-year fixed-rate mortgage. I've been preapproved at 3.25% for 15 years. Is this option the best?

- Rafael Refi

Dear Rafael,

You didn't say how far along you were in your 30-year fixed-rate mortgage. In general, you don't want to extend the term of your current mortgage back out to 30 years when you refinance unless you're refinancing to free up money in your monthly household budget, and a 30-year loan is the only way to get to a lower payment.

Homeowners are refinancing with a 15-year fixed-rate mortgage because it gives them an affordable mortgage payment, a low interest rate and significant interest savings compared to extending the loan.

The typical rules for refinancing still apply. You have to expect to be in the house long enough for the realized savings on interest expense to outweigh the closing costs on the new loan. Short-timers aren't good candidates to refinance.

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