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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

  • When refinancing at a higher rate makes sense

    Trade your old mortgage for a new, higher-rate version? There are times when it actually makes sense.
  • Should I pay off a mortgage early?

    By making extra principal payments or refinancing your mortgage, you could pay a lot less interest and free yourself from your mortgage ahead of schedule. Here are the pros and cons of retiring your mortgage early.

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