Switching to a 15 year for lower interest?

[Anonymous]

I've seen refi rates for 15 year fixed at 4.375% recently. Current loan is 5 years into a 30 year fixed at 5.25%. Monthly payment will rise from $1250 to under $1600 so I know doing the usual calculations to see how long monthly savings will break even don't apply (cos its costing more each month obviously). I have an existing HELOC but have never drawn from it so it has a $0 balance. Would having this HELOC complicate a refi? Would I have to close it (and pay early termination fees)? Is it worth it (or how does one calculate this) to refi to the 15 year mortgage at this rate or just stay in the 30 year? What calculations/formulas apply? I have approx. 70% equity to value even after value has fallen 25% in just over a year and excellent credit so qualifying shouldn't be too difficult if I don't take cash out.

[Anonymous]

No answer but some other options:

You could stay in the 30 year and make a 'principal' payment (from the next coupon) every time you make a mortgage payment. The principal goes up every month (and the interest down) - you can do this until it is no longer financially comfortable to do so You can cut years off your mortgage doing this.

Will you ever move (say in the next 10 years) - if yes prepaying may not be the best move for the shorter term.

What about a 20 year note?

[Anonymous]

Haven't seen favorable rates on the fixed 20 year to make the numbers appear appealing given closing costs otherwise I'd be tempted. Already make a modest extra principal payment on the 30 year but the spread between what I'd save by prepaying versus what I can gain in dividends elsewhere doesn't justify increasing recurring prepays. Switching to 15 year looks appealing only cos of the lower rate of 4.375% which would increase the spread I'd earn on funds not used to add to principal.

[Anonymous]

How long until you have your 30 year paid for with the extra payments? 

Generally if you still owe over 15 years, it may be worth it.  Just run the numbers very carefully. 

I personally would sit down with a very trusted financial advisor and discuss your specific situation as everyone's is different. 

In our case, we looked at all options and ran the numbers and reviewed the results with our advisor.  We have decided to refi back into a 30 year note for a mutitude of reasons.  My wife is back in school looking at a grad degree and we have three kids near college age.  We are doing a cash out refi that will put us at 74% LTV and investing the cash into our investments and to have a greater cash reserve on hand.  Plus, I am paying off all debt that we currently owe besides the house. 

As for the HELOC, we have one at 30k with only $1000 used and I have to reduce the HELOC to $15k as a requirement of the refi.  My credit union has agreed to do this because of a part of the HELOC contact that  stipulates that it is based upon the value of the equity remaining in the house.  There were no fees associated for this with mine.  Best advice there is to read your contract agreement for the HELOC.