Question: To get savings, is it better to prepay or refinance my mortgage?
A: The process isn't that complicated, but you will need to run some numbers on a mortgage calculator which can handle prepayments from where ever you are in your existing mortgage's amortization term. HSH.com has a downloadable calculator called the Homebuyer's Calculator Suite which allows for this.
If you have a specific end-date you would like for your mortgage, you can use HSH.com's "It's My Term" calculator--you tell us the term, we'll tell you the amount of the prepayment needed to hit the goal, as well as how much interest you'll save.
Back to your question: Use the calculator to run the amortization for your loan. Take a note of how much interest you will pay over the entire term. Then, determine how much additional monthly payment you can send, and add that in starting with the month you desire, and then recalculate. Now re-check the total interest cost for your prepaid loan, and see how much interest you will save, and how much shorter the term will be.
A different method would have you plug in numbers for the loan as though you are refinancing to a new mortgage. Run the amortization as above and determine how much principal remains to be paid and the remaining term and jot them down somewhere. Then, clear out the calculator, and add in the remaining principal from above as the new loan amount, add in new interest rate and new term, and then calculate. You can then compare the total interest cost and term of the refinanced loan below against that from the pre-paid loan above to see what will save you the most money.
More help from HSH.com
When refinancing at a higher rate makes senseTrade 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.
Are ten-year fixed-rate mortgages (FRM) available anywhere?Sure! Virtually all lenders who sell product to Fannie Mae or Freddie Mac will be able to offer you mortgage with a 10-year term. However, interest rates are usually the same as the lender's 15-year offerings.