Forget the equity issue for a second.

Anyone can make their loan behave like a loan with a shorter term (and hence save interest $ over time), by prepaying the principle. Ideally this would also mean that you are increasing your equity in the home, but that's NOT the reason to do it - it's to shorten your term by paying down principle, and save interest $.

The focus should be - where can you make your money work the hardest? If you have $100 a month "extra" should you put it into pre-paying your principle OR investing it? There have been interesting arguments that Americans don't have well-balanced investment plans and invest too much into their homes. At the same time, for a lot of folks, their home IS their biggest investment.

Back to your question - No matter if interest rates are rising or falling, or your home's value is increasing or decreasing, the interest rate that will be offered to any borrower will be based upon: 1. size of loan 2. term and type of loan 3. Purpose of loan (refinance rate/term, refinance cashout, purchase), 4. credit report/scores 5. loan to value (equity), and 6. Profit margin that the broker/banker/lender wants.

We have six parameters controlling rates - equity is only one of them. My recommendation is that pre-paying principle should be done as part of a larger, integrated financial plan and NOT to be done to try and beef up equity anticipating a refinance.

Good question.

Diane W.
Havertown PA

I reccommend that you re-finance if the you are getting a full precentage point or more.
you will saving money monthly and helping the economy as well. try to roll in your closing costs as well, so you don't have any out of pocket expenses.

Interest rates will eventually go up significantly to pay back for the artifical low rates we are experiencing now.
There has never been a better time to either buy or re-finance.

take advantage of it.

Orly

Orly Steinberg, CRS, GRI, SRES
Broker - Sales Associate
973-962-5410
orly@onlyorly.com http://www.onlyorly.com