Mortgage refinancing can help you to save


At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Dear Dr. Don,
We have a 30-year fixed-rate mortgage at 4.875 percent with a loan balance of about $580,000. Should we refinance to a 15-year fixed-rate loan at 3.125 percent with slightly higher mortgage payments, or can we get similar benefits if we do an annual amortization? Can you comment and tell us how it might work?

— Sarah Solution

Dear Sarah,
I don’t quite know what you mean by “an annual amortization.” As you probably know, an amortized loan has payments covering both interest expense and repayment of principal over the loan’s life.

You can make additional principal payments to reduce both the interest expense and the loan balance, which will shorten the loan term. If you want to do this annually, you can. Bankrate’s mortgage calculator will let you suggest the additional payments and see how it reduces interest expense.

Refinancing is a better solution than making additional principal payments because of the lower interest rate on the new mortgage. That presumes you’ve been in the home long enough that interest savings offset refinancing closing costs. Bankrate’s refinance interest savings calculator will do the math for you as well, helping to make the case.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the “Ask the Experts” page and select one of these topics: “Financing a home,” “Saving & Investing” or “Money.” Read more Dr. Don columns for additional personal finance advice.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

More On Mortgages:

Create a news alert for "refinance"