If rates continue to go down, you can refi again. I don’t know if I’d spend any money on a refi at this point, the rate spread is too small and who knows how long you would keep that mortgage.

If closing costs end up being $2,000, it would take over two years to make it up in interest savings.

So you are on a 175k mortgage for 30 years now at 6.375. So that is roughly $1092 a month (P&I). once you add the extra $150, you are up to $1242 a month. Look at 15 year fixed rates. You can get those at about 5.375% (Mortgage Capital Associates and American Federal Mortgage) It will cost you another $150 a month, but then you can get it paid off in 15 years. If this is too much of a stretch, you could do a 20 year fixed rate. That will get you about a 5.625% rate The payment is 50$ under what you are currently paying. Pay that extra $50 and you wil have it paid off in 18.5 years.

Refi at no cost, watch rates which probably won’t change enough to do an at cost refi.

Then apply the $74 a month to another savings vehicle such as retirement, 529 for the 4boys, etc.

We’re in the process of refinancing ourselves. And I’m salivating over the prospect of getting a rate that low.

Pay the closing costs…the lower the rate gets, the more money you’ll be saving. And a few years down the road, when interest rates spike back up to 1970s levels, you’ll be patting yourself on the back for locking in a rate so low the bank will be losing money on you.

I would say find out what the closing costs are going to be, and if they are low enough then go for the 5.8% rate. Most likely, I think that your best bet is probably to take the free refinance option and keep your eye open for rates to drop. You don’t have to put any money up front (and can in fact get an extra large principal payment through since you will have a month w/no actual payment or interest accruals but will still have the money budgeted) and you will have a lower rate. If the rates keep dropping, then you will have an opportunity to pay the closing costs later to save the money. If they don’t, then you will lose out on saving some money, but will still at least save half of that money as opposed to sitting on your thumbs.

And this still misses the point of whether or not we should refinance. Some sort of creative payment strategy is great, but the underlying mortgage is what I’m currently grappling with.

I don’t know about Bach’s approach specifically, but if it is what Chee says it is, it’s not simply making an extra payment. That would be the case if he’s talking about biweekly payments (half the mortgage payment every two weeks, for a total of 13 payments in a year). But what Chee is talking about is semimonthly payments (half the mortgage payment twice a calendar month, for a total of 12 payments in a year). From my (admittedly limited) understanding of this approach, it turns into a relatively painless saver because you don’t have to come up with any extra cash, but by making half of your payments 15 days earlier than they’re due, you save a lot of interest.

If I were in your shoes however, I would consider the overpayment as a “luxury” item that is technically optional. In the scenario where you take the 5.875% loan and save $74/month, it will take you 27 months to recoup closing costs of $2000. That seems like a long time just to break even, so I think I would wait until a rate drop would put my break-even under 2 years.

There’s no hard & fast rule here, obviously, but I think your magic number is closer to 5.5% than 6.

I’d say wait for the drop. You’ll still have the option to do a no-cost refi.

Bottom line: Yes, overpayments save money. But overpayments on a lower mortgage rate save even more money.

(d) Something else that I haven’t thought of…

David Bach in his great book The Automatic Millionaire shared a great tips about how you can save much more money by automating your mortgage payment..

Let me just share about it here.

You do the half the payment every half month. You can actually save one month payment every year by doing that

Regards