I am a 70-year-old widow with a home worth $297,000.  I have a current fixed mortgage rate of 5.5%, and I owe $142,000 with 22 years left on the loan. I am considering refinancing for 15 years with a 3.375% fixed mortgage rate. This would add $3,000 to my loan and $100 a month to my mortgage payment. The $100 doesn't hurt me financially but I am wondering if this is a good move for someone my age. — Faith P.

It makes a lot of sense to want to shorten the term of your mortgage and save cash over time, says Keith Gumbinger, vice president of HSH.com, a mortgage information and tracking site. The question is, will that extra $100 become more burdensome over time, even though it is not a problem right now? Once you refinance you are committed to that higher monthly payment

In addition to a 15-year mortgage, Gumbinger also suggests taking a look at a 20-year loan. While recent rates weren't as low on the 20 as they are on the 15-year term, you should be able to get 3.75% or maybe less, says Gumbinger. That would give you a new monthly payment of $860, about $60 less than you are paying now. You could use that $60 to prepay the loan, shortening the term with no strain on your budget. You could also put the $100 you would have paid each month on the 15-year loan toward prepayment for as long as you can afford it. If you were able to pay the $160 extra each month, you'd have your loan paid off in 188 months — eight months longer than the 15-year term. The beauty of prepaying, as opposed to committing to the 15-year loan, is that you can stop anytime if you need those funds for something else, says Gumbinger.

One final thought: An argument could be made for taking a new 30-year mortgage, says Gumbinger. This would drop your monthly payment to just $672, freeing up almost $250 per month. As in the case of the the 20-year loan, you could use that savings to prepay for as long as you like and stop prepaying if your cash needs change. "It's not as efficient for saving interest over time, but you would preserve your financial flexibility," he says.

— Walecia Konrad

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