by Bill Wald

Created on: November 15, 2010

The debate over which benefits the loan holder more, "Refinance or Extra Mortgage Payments", is a very complex matter. Complex and unless the mortgagee has a good mathematics capabilities very over-whelming. The opinion of this side of the debate held by the author is to always make extra mortgage payments. Be the amount of the payment only a few dollars to a full extra payment of the total coupon amount.

Depending upon the discipline of the payee it can be said that keeping with existing or refinance is a better approach. Assuming you have poor habits when it comes to paying bills a fixed amount is best in a forced payment schedule. People who have a firm grasp of their finances will most times take advantage of accelerated payment schedule to more rapidly lower the outstanding balance.

Most importantly a plan involves calculating all different aspects of a payment plan to determine which best fits into your current and forecasted financial situation. Historically as we advance in a career path our income advances proportionately allowing for increased payments to satisfy all outstanding loans. Beginning first time home buyers will opt for lowest percentage interest (APR) allowing for a larger dollar value mortgage at a similar monthly payment. Starting with a low teaser rate in a "balloon" mortgage, where the interest rate can increase rapidly after a few years and/or the full amount is due and payable at the balloon date. Many loans allow for interest only payments in the beginning.

Refinancing a loan can be calculated and amounts of interest and principle determined over the life of the loan. It is normally found an improvement to a lower interest rate of 1% or more is beneficial. It must be documented and figured into the dollar value if closing costs and other fees are to be included.

Best advice is to use a computer program or a financial calculator to place all of the variables into the equations where all the values of interest and principle are shown. Many will illustrate each year of the loan term so it is easy to compare various percentage rates and term lengths.

To avoid getting trapped in a large loan payment should hard times befall should a job loss occur, the smallest payment level is advised at the longest term and smallest interest rate. So refinancing into those areas is well advised.

Example of lower rate: $10,000 at 3% = $25.00/month interest whereas at 4% = $33.33/month giving a difference of $8.33 at the first month so

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