Reply to trying to advise friend -- is it wise to refinance to a 15-year mortgage?

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Reply to "trying to advise friend -- is it wise to refinance to a 15-year mortgage?"

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[quote=Anonymous][quote=Anonymous]If they can afford $500/month extra + the cost of the refi, have them throw that at the current mortgage and get rid of PMI that way.  I think the flexibility of a lower mortgage payment is worth the extra interest, since they can choose to pay it off earlier but not be locked in if they end up in dire straits (job loss, medical issues).  Not worth it to me, especially if the new mortgage amount makes them nervous.[/quote]

It actually doesn't work out that way.  The cost of the refi can be rolled into the loan, and it really isn't much.  The $500 extra a month if paid as extra to principal will pay off the house in 22 years, not 15.  You have to remember, the new higher payment has no PMI.  So even though it's $500 more than the current, it still means so much more of the original payment amount is going toward principal.

The question is whether the monthly flexibility now is more valuable than having the flexibility at age 55 of a paid-off house.

Honestly, I might just tell them that it really seems like 6 versus a half dozen.  [/quote]

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