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Question By
tenfourgoodbuddy

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home mortage is 55,000.00, should i pay 15,000.00 on principal and refinance?.
3.75% aprtenfour

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I responded with a reply, but apparently CK didn't allow posting.

I recommend you put the money into an account earning more interest than you're paying on your mortgage and let it compound. Any mortgage refinance is going to involve fees. If you file long form on your federal income tax, your mortgage interest is fully deductible. 

Paying an extra one or two hundred on your principal will shorten your loan term by years. Look at an amortization calculator and you can shorten your term from about eight years or more.

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Reply by
mindjazz

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That is a small loan, and your interest rate is right in line with today's rates. Maybe one point higher. I don't know what your term is, thirty years? 

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You're probably going to pay $1500 to $4000 in loan fees on a refinance. Your property will need to be appraised, and you have loan fees.  3.75% is not a bad interest rate for a 30 year mortgage, if that's the term you have. Rates are going up.

I don't know what HARP loan rates or fees are, but a new loan can only be taken out for the balance (no extra cash out), all payments on time for the past year, and loan must stay with your current loan provider. No appraisal needs to be done, or proof of income.

I suggest you pay more on the principal rather than refinance. Your loan term will be reduced. Paying an extra $100 or more a month on principal decreases your loan by years.  A loan of $55,000 at 3.75% for 30 years will be reduced by 12 years and 3 month paying an extra $100 a month on principal.

$15,000 in an investment account paying 8% or more is a better option. Also realize if you file long form on your taxes, you can deduct your mortgage interest.

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The refinance question is dependent upon how much lower your interest would be and the savings you would encounter monthly as well as over the life of the loan.   Just paying the 15 on the 55 load would increase your credit score, however, immediately doing the refi would negate the increase.   Perhaps do the refi if possible and once the loan is complete, drop the 15 on the refi loan. 

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