Great home loan offer - not!

[disneysteve]

I got a refinancing offer from my mortgage company today. They want me to switch from my current 25-year loan to a new 15-year loan. I'll save $17,864 in interest if I do so according to them. Sounds good, right?

Here's the problem. We only have 18 years, 7 months remaining on our loan. Not that there is anything wrong with knocking off 43 months but I don't think it is necessary. First off, they want me to pay 2 points. Then, the new payment will be $85/month higher. If a human being had actually reviewed my account rather than some computer spitting out this offer, they would see that I've actually been paying a extra $100/month toward principal for quite a while so my actual remaining term is even shorter than 18y/7m. By just continuing to make that $100/mo extra payment, the loan will be gone well ahead of schedule and I don't have to go through the whole hassle and cost of refinancing. Plus, if we ever have a tight month, I can skip the extra payment, not be locked into a higher payment.

[wincrasher]

I've often thought along the same lines.

If I'm going to get a loan, I always go with the longer term so I have flexibility if I run into trouble. The interest rates usually aren't that much different.

My last car loan, I got 60 months - payed it off in 24.

My new mortagage is a 30 year at 4.875. My plan is to pay it off in 5 years. But if interest rates start climbing again, I may rethink that plan and put my money in something with a higher yield.

Debt is not a bad thing if you use it to your advantage.