Restarting your loan clock? Alternatives to refinancing

The exciting idea of lowering your monthly mortgage payments by refinancing can quickly be washed away by the empty feeling that you’ll have to start all over again. It’s truly unnerving to set back the hands of the 30-year home mortgage clock and the decision should never be taken lightly.

Unless you are strapped with an immediate need for a large sum of money, for example a medical emergency or pressing family need, the decision to refinance should definitely be based on how long you will be in your house.

If you are going to be there fewer than three years, the loan fees and other costs, time and inconvenience may outweigh the lower interest rate on your new loan. And even if you are going to stay in the house longer, look at these options before starting a 30-year commitment all over again:

• Lump-sum prepayment: Financial advisers say their not-so-thrifty clients should take the money they would pay in refinancing fees and apply the cash to the loan principal. The money would pay off the original loan faster and save interest. This will make a lot of sense when you look at the Internal Revenue Service 1098 form that you receive from your lender. This form, which shows annual payments to principal and interest, showed one reader she paid five times more to interest than principal.
• Biweekly payments: This is basically a prepayment method that calls for two payments a month instead of one. By making 26 biweekly payments instead of 12 monthly payments, the borrower makes what amounts to an extra monthly payment. This payment goes directly to the principal portion of the loan, greatly reducing the term and interest payments. Several biweekly programs are available, some offered by local banks if you accept a refinance.
• Monthly Do-It-Yourself: You can accomplish this program yourself. Most banks will accept prepayments at any time. On your monthly mortgage coupon, there’s usually a space for extra amounts paid to principal. Discipline yourself to add extra cash each month. See if you can add enough in 12 installments to equal an extra month’s payment. Biweekly companies are simply betting you can’t discipline yourself, and therefore, you need their services.