My husband and I are considering refinancing our 15 year mortgage and I’m unbelievably torn over the decision. I’m searching for the best mortgage deals and think we can save at least half a percentage point. The change in interest rates, (from 5 to 4.5%), will decrease our monthly payment by roughly $375 a month. While the boost in monthly cash flow will certainly help us meet our savings goals, I’m not fond of shelling out money for closing costs or extending the life of our loan.

Up until now we’ve been paying our mortgage bi-weekly, which means we are a few months ahead of our initial payoff schedule. In fact, if we continued to pay bi-weekly our mortgage would be paid in full in 13.7 years rather than 15. We’ve held the mortgage for roughly a year and half, so refinancing to another 15 year mortgage will push the payoff of our mortgage by at least two years. If we leave the mortgage alone it will be paid in full by the time I reach 45. If we refinance I’ll be at least 47.

I’ve run a bunch of different calculations and can’t seem to find a conclusive answer on whether or not to refinance the loan. Some calculations seem to think we’ll break even over the life of the loan, because the decreased mortgage rate will make up for the extended time period, while others seem to think we’ll lose a few thousand dollars because the change in interest rate isn’t significant enough to make up for the closing costs and other mortgage related expenses.

This will be the second time we’ve refinanced this particular mortgage. The first time around we paid off a big chunk of the principal and shrunk both the interest rate and term. It felt great moving from a 30 year jumbo to a 15 year conforming loan. This time, while the mortgage rate will decrease ever so slightly, I’m not certain that I’m willing to sign up for another 15 year mortgage. I hate the idea of extending the clock on something I want to pay off so badly.

Sense says

Have you factored in the emotional cost that you outlined here? It sounds like we're talking a few thousand dollars (max) vs. a paid off house by 45…I don't own a house, but with these big decisions where logic doesn't help, I try to go with my gut!

If you refi would you keep making bimonthly payments? Or pay what you're currently paying each month? I don't know which calculator would work for that but it seems if anything you'd pay it off even sooner.

Couldn't you refinance and just continue to make your current payment? Surely that would cut time off the payoff, even if in theory it would be 15 more years.

don't forget to factor in inflation… If the government continues to "monetize our debt", tomorrow's dollars become worth less and less. This is a very important part of the equation that most people forget to factor in. Our dollar went from being worth 86 U.S $ INDEX (NYBOT:DX)at the start of last November to 75.7 today. As the dollar becomes worth less and less, you are paying back the loan with money that doesn't go as far. In fact, in my opinion, you are MAKING money by extending the life of your loan. True inflation is quite a bit above 4.5%. Good luck with whatever you choose!

Calculate what your monthly payment is to pay off the loan by the original loan date so you've both taken advantage of the lower interest rate and stayed on schedule for pay off. You may find you're still saving a small amount of money to put towards savings but for me, the concept of having a paid off home is more appealing than most anything.

Let us know what you decide to do, please. I'm curious…

Andrea