Does prepaying mortgage trump refinance?
Dear Dr. Don, Doesn’t prepaying a mortgage accomplish the same result (i.e., reducing the term and the “effective” interest rate) as refinancing? The advantage to prepaying versus refinancing is there are no closing costs. Are there any advantages to refinancing? My wife and I were thinking about refinancing, but now I’m not so sure. — Randy Refi Dear Randy, Making additional principal payments on a mortgage reduces its term and the total interest expense, but doesn’t reduce the effective mortgage rate. In some instances, it will actually raise the effective interest rate. For example, if you paid discount points at closing, having these points spread over a shorter loan term will increase your effective interest rate. There’s a difference between the annual percentage rate calculation and the effective interest rate on your loan. One primary difference is that the effective interest rate considers any impact your interest expense has on your personal income taxes. You can use Bankrat
