Dear Dr. Don,

I bought my house in 2005 for $375,000 and the interest rate on the mortgage is 5.25 percent. I put 10 percent down and pay PMI (private mortgage insurance). The principal that I owe on my house is approximately $308,000. I am thinking about refinancing to a 15-year fixed-rate mortgage. My wife and I earn approximately $180,000 combined a year and have excellent credit. The problems I have are that due to the economy, I don’t have 20 percent equity, and I am not sure how long I am going to stay in this house. I need advice.

— Joe Jericho

Dear Joe,

Not having 20 percent equity puts you in the position to need PMI on the refinance as well, assuming you have enough equity to qualify for a mortgage. If you don’t, you can consider a cash-in refinancing, where you put additional money down at closing to qualify for the loan. The Bankrate feature, “‘Cash-in’ refinance activity skyrockets,” provides more detail about this approach.

You’re paying PMI now, so continuing to pay PMI on the refinancing, while not optimal, shouldn’t add much, if anything, to your monthly mortgage payment. Capturing a lower interest rate is the real attraction in moving to a 15-year fixed rate mortgage.

By incorporating the cost of the PMI into the refinancing decision, you can still use a refinance calculator to estimate whether it makes sense to refinance, given the amount of time you plan to be in the house. Bankrate’s refinance mortgage calculators will help you with that calculation.

You could also look into a Federal Housing Administration, or FHA, mortgage. You can qualify for this mortgage with a lower down payment. You still have a monthly mortgage insurance premium, or MIP, and will pay an insurance premium at closing for this type of mortgage. The FHA Frequently Asked Questions page on the Department of Housing and Urban Development, or HUD, website will give you an overview on this type of mortgage loan.

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