Nicole and Anthony (who asked us not to use their full names) live on the Upper West Side in a two-bedroom they bought for under $800,000 in 2003. They want to lower their monthly nut, and Melissa Cohn, of the Manhattan Mortgage Company, offered her advice.

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Mortgage: $410,000 (with $389,000 in remaining principal)
Current Rate: 6.125% fixed, over 30 years
Monthly Payment: $2,491

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Option 1. Refinance into a new 30-year-fixed.
Nicole and Anthony are “actually paying a rate which is just below market today,” says Cohn. At 6.25 percent for the $389,000 remaining, their new payment would be $2,396 per month, knocking off about $100 per payment. It would take about two years to recoup costs.

Option 2. Take on an adjustable rate.
“If they really want to get their payment down,” a five-year interest-only loan at 5.875 percent would mean a new monthly payment of $1,904. But—and it’s a giant but—they will be betting that in five years, rates will drop. If they don’t, they’re in for a huge increase.

Option 3. Make a thirteenth payment every year.
It won’t decrease their monthly outlay, but the loan will be paid off in 23 years instead of 30. “That’s the home run in my book,” she says—those seven years’ payments will total $209,000.

The couple chose option No. 3.
“We’ve paid off more of the principal every month when we could,” says Nicole. “We don’t have 401(k)s, so it would free our money up. It’s painful to see how much interest you pay over time.”

Annual Savings: $9,086
(Over 23 years)

Related:

• Archive: “Cover Story”
• Table of Contents: Nov 10, 2008 issue of New York | Subscribe!