Is it worth shortening my loan term?

Q: I can shorten the term of my loan by 12 years and lower my interest rate by two percentage points. My monthly payment will rise by $300, and the closing costs will run about $3,000. Is it worth it to refinance?

A: It goes without saying that you'll save a bundle of interest cost by killing off those 12 years of mortgage payments, and you'll more than recover your $3,000 over time. However, before you commit to that sizable increase in monthly payment, you'll want to make sure that other facets of your financial life are well managed. This includes paying off high-rate credit cards, getting life insurance in place, funding retirement and education accounts and more. If that $300 per month can be put to better or more broad use, you may wish to consider a somewhat longer mortgage term, which would put less of a commitment on your cash flow.