Lower mortgage rate not always best

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Dear Dr. Don,
I am having a difficult time deciding whether or not to refinance our house. We have a 15-year, fixed-rate mortgage that is due on Dec. 1, 2020. I would like to pay it off early if possible.

Would it make sense to just pay more each month, or should I try to refinance at this point? Our interest rate is 5.5 percent, and there seems to be 4.25 percent and below out there.
— Annie Amortize

Dear Annie,
You have to weigh the costs of refinancing against the savings available from the lower interest rate. It should be done on an after-tax basis if you can take advantage of the mortgage interest deduction on your taxes. But since you’re looking at the difference in total interest expense, comparing on a pretax basis will work well enough to make the decision.

More than four years into a 15-year mortgage, the worst of your annual interest expense is behind you. Extending back out to a 15-year mortgage could actually increase your interest expense, even at the lower interest rate.

You didn’t give the particulars about your mortgage balance or the appraised value of your home, but you can use Bankrate’s “Refinance interest savings calculator” to compute the difference in interest expense between the two mortgages after choosing the maturity on the new mortgage.

As I write this reply, Bankrate’s national average for a 15-year, fixed-rate mortgage is 4.73 percent. That’s not quite as low as the 4.25 percent you’re seeing in your market.