Curing refinancing envy

DO YOU HAVE refinance envy?

Come on, you can admit it. You've been at an event or lunch with co-workers and someone brags about the interest rate she just got when refinancing her mortgage. You stay silent, grieving that you can't take advantage of the low interest rates for mortgages.

You grumble when you read news stories like this one from the Associated Press on Thursday: "Average U.S. rates on fixed mortgages fell closer this week to their historic lows, making homeownership more affordable and refinancing more attractive. . . . The average rate for the 30-year fixed loan dipped to 3.41 percent from 3.43 percent last week. That's not far from the 3.31 percent rate reached in November, which was the lowest on records dating back to 1971."

The rate for 15-year fixed mortgage was 2.64 percent, not far from the record low of 2.63 percent posted last November.

As mortgage rates fall, people are rushing to refinance. But what if you can't refinance because you don't qualify or your home is worth less than what you owe, meaning you are underwater? Or maybe you are 15 or 20 years into a 30-year mortgage and you don't want to stretch the payments out again. Still, you can't stand it that you are stuck at a 5 or 6 percent interest rate.

But there is a way to cut the amount you'll pay in mortgage interest to achieve savings as if you refinanced. HSH.com, which publishes mortgage- and consumer-loan information, has created two calculators for homeowners who are unable to refinance at today's low interest rates.

The company's "PreFi" and "LowerRate" calculators help homeowners figure out how to attain a lower effective mortgage interest rate through prepaying their mortgage principal.

The PreFi calculator will help if you have a specific dollar amount available for prepayment each month. It calculates your interest savings over the remaining loan term and your effective interest rate as a result of making extra payments. The LowerRate calculator can be used if you want to aim for a specific interest rate.

"If you can't refinance your mortgage but can afford to pay some additional money each month, that prepayment might save you as much as an actual refinance," said Keith Gumbinger, vice president of HSH.com.

Gumbinger said he got the idea for the calculators because he was contemplating whether he should refinance his own mortgage. But he's so far along in paying the mortgage down, and the amount is so small, he wondered if it was worth the time and cost of refinancing.

"It's hard to achieve measurable savings when you are in my situation and not interested in restarting the mortgage," he said.

Let's say you took out a $200,000 mortgage two years ago at 4.5 percent, which was the average 30-year fixed rate in mid-June 2011. You have an extra $200 a month you could apply to the mortgage principal.

Without prepayment, you will pay off your loan in 337 months (28.08 years). Total amount of interest you'll pay: $147,819.88. With prepayment, you will pay off your loan in 244 months (20.33 years). Total amount of interest you'll pay: $102,216.80. Your effective interest rate over those 244 months: 3.843 percent.

Here's an example of how the LowerRate calculator works, using the same information. You want that 3.41 percent interest rate. So in the calculator, you would enter 3.41 to find out exactly how much extra you'll need to pay each month.

To get the equivalent interest cost of a 3.41 percent refinance over a term of 28.08 years, you would have to prepay $167.10 every month - or just a little more than $2,000 a year.

Of course, the assumption is that you have the extra money to pay down your mortgage. But many people want to refinance because they want to lower their payment. In this case, it may be worth considering a refinance, if you can qualify. Aside from savings, refinancing does free up cash you might need.

If you are not well-positioned financially - you're not saving for retirement or college for your children, paying down other debts such as credit cards - then prepaying your mortgage may not make sense, Gumbinger said.

Still, try out the calculators and prepay on your principal. The next time someone brags about the lower interest rate they got, you won't have to be envious.