Refinance Now, Pay Later

When is it better to apply some straight cash to your mortgage balance ... now, or when you refinance to get out of the adjustable rate mortgage?

QUESTION: Bridget bought her house 4 years ago on an adjustable rate mortgage. She’s debt free except the house and has saved $35,000 above her emergency fund. Her balance is $172,000 and she makes $77,000 a year. Should she pull the savings out and apply it to the principle balance, or refinance and apply it then?

ANSWER: Reduce the balance at the refinance. Put your new $135,000 note on as short a term as you can realistically do without too much strain and pay extra on that. If you have a payment of $986, then you can probably do a $1,500 a month payment, and if you do that much on a $135,000 mortgage at 6.25% interest, that will put you on about a 10-year plan. If you can find any extra to put on the monthly payment, you can knock it out even faster.