If the situation suits you, consider refinancing your mortgage, but continue to pay the same amount as before and pay down the principal.

Q: The question in your “Real Estate Matters” article in the paper was of interest to me. You advised a reader that asked about refinancing her $87,000 loan from 5.25 percent to a new loan at 3.99 percent. I would suggest that there is another solution. She was paying about $700 on her old loan and was going to pay about $625 per month on her new loan.

If the individual takes the new mortgage but pays $700 per month on the mortgage, most banks will apply the additional $75.00 to pay down the principal. In the first year, she would have paid off the closing cost that was included in the new amount of the mortgage. By continuing paying at $700.00 per month, she would be paying down the mortgage by $9,000 extra in ten years and or $18,000 in 20 years. All the time the individual is doing this, she is dropping the amount she is paying in interest because the balance due is dropping as well.

When we purchased our home in 1977, we had a 25-year loan that we paid off in 1992, or in 15 years, by increasing the amount of the checks each month by $100 or more. The person asking the question could accomplish the same thing. The bank was happy to go along with this method and I suspect the bank that is offering this loan would probably do the same thing.

I would imagine that you have a computer program with which you could calculate how soon the additional $75.00 per month payment could help pay off the loan.

Because we have not had a mortgage payment on our home for 20 years, we have been able to save for our retirement instead, by using what would have been a mortgage payment to invest in stocks, and increased our income from dividends, capital gains and interest as a result.

This is a suggestion that worked well for us, and I hope it might for the individual as well.

A: Great information and great suggestions. Your option is certainly a good one. If you are able to refinance and meet certain requirements to make sure refinancing is good for you, you certainly can take advantage of a lower monthly payment, pay a higher amount and pay off your loan at an accelerated rate.

But we still believe that you need to look at more than just the monthly payment you receive when you refinance. As we have stated in prior columns, you need to make sure it won’t take you long to repay the costs of refinancing. You should compare your new interest rate and payment against your current interest rate, but then make sure that you work the numbers to see what your new interest rate would do to your payments if you paid off the loan over what was left in the term of your old loan.

That is to say, if you’ve had your existing loan for ten years and take out a new thirty-year loan, you will be paying interest on that loan for an additional ten years. Those additional ten years might make it worse for you over the long term. While your new payment might be lower, paying those lower payments one hundred and twenty times can’t be good.

In your situation, it appears you worked hard to manage your finances and have been able to save money for retirement.

If you refinance, the costs need to be low, the new payments should be lower than your old payments – unless you decide to go from a thirty year loan to a fifteen year loan, and you need to understand how to deal with the savings you get from refinancing.

For some homeowners, they need those savings now to pay for other important expenses. However, as you believe, we think that reducing your long term debt is a good thing to do as you move into your retirement years.

One last comment, you found that you were able to take the savings and invest those funds for the future. That was wonderful and has worked well for you. For other people that may not be as savvy about investing, paying down their debt rather than keeping their money in a checking account or under the mattress might be a useful financial tool for them over the long run.

Thanks for your letter.