Q: My husband and I built a new home in August 2001 with a conventional mortgage of $55,000 for 15 years at a fixed rate of 6.25 percent. As well as paying our regular monthly payments, we have prepaid our mortgage by about $2,000.

This week, we received a mailing from a large lender saying we could refinance for 5.62 percent with no added cost to us. This will reduce our monthly payment by about $70. However, we would finance the balance we owe ($48,000) on the mortgage and begin again with a 15-year mortgage (180 payments).

Are we smart to refinance with this package? We looked into refinancing when the rates were around 5 percent but felt that the additional closing costs were not worth it and we could pay an extra amount any time we wanted.

A: With the figures you’ve given me, I calculated that you’d save about $76 per month switching to the new loan, or about $912 per year. But, as you point out, you’re adding three years’ worth of payments onto your mortgage.

However, if you add that $76 back as a pre-payment each month, you’ll cut the new 15-year mortgage to about 11 1/2 years, and perhaps save six months’ payment, or up to $2,500, because you’ll make fewer payments.

That’s a decent savings. However, if it’s going to cost you anything to do this loan, that may eat up your savings and whatever you do save, if anything, may not be worth the hassle of going through the refinancing process.

If interest rates move lower, you should think about making a move. For example, on E-LOAN.com’s amortization calculator, I calculated that if the 15-year rate fell to, say 5 percent, then you’d save about $100 per month which, if applied as a prepayment, would mean you’d pay off your 15-year loan in about 10 1/2 years instead of staying with what you have and paying off the loan in 12 years.