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Is refinancing a good idea for me?

Q: I purchased home in 1993 for $159,975 with a 30-year fixed rate at  6.75%. I currently have a VA loan with a balance of $123,834. I am considering a VA streamline refinance (no fees or appraisal). The new loan would be for $124,077 at 5.25% for 26 yrs/9mos. My current payment is $1,042 and my new payment would be $720. I am a 63 year old widow and am trying to scale back expenses. Should I refinance, considering that I'm into the principal repayment of my loan?

A: It can make good sense to refinance, but you'll need to make a decision as to what is more important: improved cash flow to the maximum possible or owning your home free and clear more quickly. Refinancing to a new longer term will mean the greatest improvement in cash flow, but does come at long-term expense, not to mention that you'll have a mortgage in place until you are some 90 years old.

If a streamline refinance is available with a 15 or 20-year term, you should be able to improve your cash-flow position to a fair degree without seriously increasing the long-term capitalized cost of owning your home. It should be noted you must have a second mortgage against your home, since your original mortgage from 1993 should be paid down well below the $124,077 you claim your new loan would be. Even so, using a 20-year term for your refinance would only extend the total payoff of your loans by perhaps two years, while your monthly payment would drop from $1,042 to $836 per month -- not as pronounced a drop, but sizable, nonetheless.

To compare and review refinancing scenarios and costs over time, you should use our Tri-Refi Calculator.

More help from HSH.com

  • Can we do a "cash-in" refinance?

  • How do I remove or add a name to a home loan?

    In general, the only way to remove a name from your mortgage will be to refinance or pay off the debt. This is also true when trying to add names to the mortgage. Lenders will not add nor remove names from such an obligation without the opportunity to ensure that the other borrowers have the ability to pay.
  • I'm trying to refinance a jumbo loan.

  • Is there a ten year refinance mortgage out there?

    Almost any lender that offers a fixed-rate mortgage will offer a 10-year mortgage. Mortgage rates for a 10-year mortgage usually aren't any better than the rates offered for a 15-year mortgage. That said, be sure to shop around to find a competitive rate. Getting a fixed-rate mortgage with a term as short as 10 years will save you a lot of money on interest costs.
  • Living on investment income. Can we refinance our Jumbo mortgage?

    Have you talked to your investment advisor (if you have one)? Some firms will make mortgages for clients with different rules than those you'll find in the open market.

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