Bank refinance offer in the mail may be your best bet if you have a low balance mortgage loan.

Q: I enjoy your column each week and have a refinancing question for you. I purchased my house in 1997 and refinanced in 2003. My current loan balance is small at about $75,000.

On Tuesday, I received an offer from my current mortgage lender offering to lower my rate from 6 percent to 4.63 percent with a 30-year fixed rate mortgage with no closing costs: no origination fee, no appraisal fee, no title insurance fee, no attorney fee, no settlement or closing fee, no notary fee, no flood determination fee, no courier/overnight delivery fee, no abstract or title search, no recording fee, no city/county tax/stamps fee.

This offer is only good for a couple of days.

I called the number on the letter from my lender and was told I’d save $150 a month. My question is this: Wouldn’t I be paying more for the entire loan at the end of the mortgage in the year 2032, if I refinanced with a 30-year fixed even though it is a lower rate?

A: Before you refinance on those terms with your current lender – even if there are no fees involved – you would want to shop your deal around. Based on the interest rates these days, you might find that you might get a much better deal with a different mortgage lender or mortgage broker.

Your lender is offering to reduce your interest rate by a bit over one percent, but you might be able to get your loan reduced by two percent or more by shopping around.

But your question does raise an interesting point. For you to accurately compare your existing loan with a new loan, you need to use a mortgage calculator that can tell you what you should pay on your new loan to pay it off in full on the day you’d pay off your existing loan. That is to say, if your current loan will be paid in full in 21 years, you’d need to compute your payment on the new loan so that you’d pay it off in twenty one years and not pay an extra nine years of interest.

Given this information, if your current lender is not adding fees or expenses to the amount you’d owe the lender, and they are simply giving you a new loan at a new and lower interest rate, you will save money. Not as much as the $150 per month they quoted you, but you will save money nonetheless.

If your loan balance is about $75,000 and your new rate is 4.625 percent, your new monthly payment on a 30-year loan would be about $385, but if you amortize that over 21 years instead, your payment would be about $465, or about eighty dollars more.

So while they said you’d save about $150 per month, you would actually reduce your payments by about $70 per month nonetheless to pay off your loan at the same time as under your old loan. But you might be able to find a lender willing to refinance your low balance mortgage by giving you a 20-year loan.

And, the real prize would be for you to refinance your loan to a 15-year loan. You can probably find a lender willing to give you a 15-year mortgage for 3.5 percent or less. In this case, you’d lower your interest rate nearly 3 percentage points and shave 6 years off the loan term. It’s a huge win for you in terms of savings.

The only issue for you would be to make sure that the costs to refinance your loan are kept low. If your costs are high, it may take you years to see the benefit of refinancing. If the costs in your state will be high to refinance, your best bet might be to take your lender’s offer.

So start shopping around for a 20-year or 15-year loan with four or five different types of lenders.