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Some say extra payments trump refi to lower rate

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Some of the most difficult questions I receive from readers concern the relationship between making extra payments and refinancing. I have never been very happy with my answers, and recently took a harder look at how making extra payments and refinancing are related. The hope was that if I understood it better, I could answer the questions better. This article reflects my current understanding, followed by new answers to some common questions. Extra-payment decisions and refinance decisions should be made independently because they are based on very different factors. Yet each may affect the other, which is why it is easy to become confused. The extra-payment decision is best viewed as an investment decision. The funds used for extra payments could be invested in CDs or bonds where they would earn the return being paid on those assets. Instead, they are invested in reduced mortgage debt, on which they earn a return equal to the mortgage rate. What mortgage rate? The rate...