that's not exactly how it works.

They dont charge you the interest up front.

Its just that when the principal balance is higher a greater % goes to interest.

Its still compounded monthly.

Fair point. Not sure what kind of numbers

@ghost is working with (edit, just saw the $40k remaining, so cut everything below pretty much exactly in half), but to run some numbers for illustration:

30 year, $200k principal, 4.75% rate, $1043 monthly payment, 23 years in, 7 years remaining

Principle remaining $80.3k, Interest remaining $15,987

10 year refi, $80k principal, 2.5% rate, $754 monthly payment

Principle remaining $80k, Interest remaining $10,500

30 year, $200k principal, Renegotiate to 3.5% rate, $1043 monthly payment, 23 years in, 7 years remaining

Principle remaining $80.3k, Interest remaining $10,600

10 year refi, $80k principal, 2.5% rate, $754 monthly payment

**plus $290/month to keep payment same as current**
Principle remaining $80k, Interest remaining $7250, and you pay it off in 7 years instead of 10.

So if you refi to a 10 year at 2.5% (you should certainly be able to get a better rate on this with a 10 year), you'd save $5000 in interest and drop your monthly payment 25%. Or if you stay with the same bank, renegotiate to about 3.5%, and keep the 7 year term remaining, you'll pay about the same amount in interest as refinancing, but without the cost and hassle of refinancing. Its the easier option, and will cost about the same in the long run if you don't pay extra every month. If you refinance, but keep paying the same amount, then that is by far the best way to go. Pay it off just as fast and save $8000. Feel free to send a commission check for my sage advice