<p>istomuch wrote:
So what, you get it back if you keep your old loan? Obviously not: the money you have already paid in interest is gone no matter what. When you refinance, your payoff will be based on outstanding principle and unpaid interest accrued through the date of payoff; you stop paying interest to lender #1 and you start paying interest to lender #2. If you were paying 7% interest to lender #1 and you are paying 5% interest to lender #2, then obviously you are going to come out ahead. </p>
<p>Refinancing can be expensive because you have to pay loan generation & closing costs (appraisal, title insurance, etc.); you may have to or choose to pay points; and obviously if you refi in a way that extends the loan (for example, take a new 30 year loan when you are 10 years into your old loan), you will pay more over time. Because of the expense of refinancing, some people with a fixed rate mortgage may be better off if they simply accellerate their mortgage by increasing the amount of payments - by adding to their monthly payment – rather than refinance to get a lower interest rate. That is exactly the question that was raised here: is it better to refinance with a 15-year mortgage or simply start paying more into the 30 year mortgage?</p>
<p>Fortunately, it is very easy to figure out what to do, because reputable lenders will give you a statement as to closing costs when you apply for the loan. So all you have to do is add up the numbers and see what the refi vs. the existing loan will cost you over time. There are also calculators on the internet that allow you to plug in the closing costs + points and see the “breakeven” point - that is, when you will reach the point where you have saved more by refinancing than you would with staying with the old mortgage; this can often be several years out, so it’s important to simply consider how long you plan to stay in the house.</p>
<p>You also need to take into account tax considerations – for example, points are generally used to buy down the interest rate, and also they are generally tax deductible - so when you factor in the tax savings the net cost is somewhat less. (Someone earlier posted, incorrectly, that you should never pay points or that the best deals were no-point loans – this simply is not the case if you are trying to lock in a low rate for a property that you expect to hold for a long time. You will pay more over the short term, but less over the long run, depending on how much the interest rate gets discounted).
A home equity line of credit (HELOC) is not an amortized mortgage, because generally the monthly payment is NOT enough to pay it down during the term of the loan. Thus if you take a 10-year HELOC and only pay the minimum due, at the end of 10 years you will owe the bank a balloon payment. It is ALWAYS better to try to pay down a HELOC as rapidly as possible, because basically the HELOC is the same as a credit card – your minimum payment is never enough to make a significant dent in principle.</p>