Another mortgage refinance question

**PMMM** · 08-29-2010, 11:38 PM

Steve, I think I would take the prepayment issue out of the equation and look at each deal on it's own merits. I would calculate the total interest paid on your current loan if you paid per normal terms and then look at the new amortization schedule for the loan you are reasonably sure that you could get. I would then go with the lowest interest paid.

I would make my decision on that. Any prepayment that you then decide to make is just more gravy for you.

I think that is how I would determine which way to go.

Regards,

PMMM

**jIM_Ohio** · 08-30-2010, 05:50 AM

Steve-

I am in middle of refinancing from a 30 year 5.75% loan to a 30 year 4.25% loan. Our appraisal was done today.
If you put the extra $60 savings (per month) towards the mortgage, how much faster would it get paid off?

Because its possible the $600/mo payment has more value to you than the $60 monthly savings on that payment... so get access to your money faster.

**wincrasher** · 08-30-2010, 06:32 AM

Not sure about your numbers - Your payment must include escrow.

If not, 87000 at 5.875 is 514.64
at 4.35 is 434.38

on 15 years

@5.875 is 728.29
@4.35 is 660

Are the fees and the hassle worth it to refi? Depends on your closing costs, I guess. On one hand, you have budget flexibility if something comes up. In either case, paying down your balance is paying you a higher yield than just about any investment that I know of.

BTW, I've found higher rates on the 15 year than the 30 in my area. Not sure why.

**jIM_Ohio** · 08-30-2010, 07:12 AM

Originally posted by wincrasher View Post

Not sure about your numbers - Your payment must include escrow.

If not, 87000 at 5.875 is 514.64
at 4.35 is 434.38

on 15 years

@5.875 is 728.29
@4.35 is 660

Are the fees and the hassle worth it to refi? Depends on your closing costs, I guess. On one hand, you have budget flexibility if something comes up. In either case, paying down your balance is paying you a higher yield than just about any investment that I know of.

BTW, I've found higher rates on the 15 year than the 30 in my area. Not sure why.

Without seeing the HUD, its possible people put points on the 30 to make payment appear much lower.

If your standard practice when asking for a refi are 3 loan terms

1) 30 yr fixed
2) 15 yr fixed
3) one other product (maybe an ARM) you can see what options look best.

A friend and I are both refinancing

I found 4.25% on 30 yr fixed no closing costs
He found 4.25% or 4% on 15 year fixed through 2 brokers.

**disneysteve** · 08-30-2010, 07:19 AM

Originally posted by wincrasher View Post

Not sure about your numbers - Your payment must include escrow.

If not, 87000 at 5.875 is 514.64

Sorry if that wasn't clear. 87K is the current balance, not the original loan amount. That's why the payment is $697.

**jpg7n16** · 08-30-2010, 08:06 AM

Here's what I calculated out: at your current rate ($697/month @ 5.875%) - you will have 193.4 payments left, for a total $134,784.40 paid to remove a balance of $87k. Meaning $47,784.40 paid in interest.

If you kept the payment the same ($697/month):

@4.25% - 165.1 payments; $115,041.44 paid to remove $87k = $28,041.44 interest (savings of $19,742.96)
@3.75% - 158.5 payments; $110,443.67 paid to remove $87k = $23,443.67 interest (savings of $24,340.73)

If you adjusted the payments down to have the same payoff date:

@4.25% - 193.4 payments of $622.17; pay $120,314.78 remove 87k = $33,314.78 interest (savings of $14,469.62)
@3.75% - 193.4 payments of $600.12; pay $116,050.74 remove 87k = $29,050.74 interest (savings of $18,733.66)

The way I see it, the refi could save you $15-25k over the next 16 years or so.

**MonkeyMama** · 08-30-2010, 08:43 AM

Without running the numbers again, I agree that it's worthwhile.

You can probably save 1-2% without any closing costs. IF you just had a couple of years left, well, eh. But you have maybe 10 years left on the loan. This is what sways my answer. IT can add up to some significant savings, with time.

Personally, I would refi. It's not that much hassle, in my opinion.

**jIM_Ohio** · 08-30-2010, 09:32 AM

Originally posted by MonkeyMama View Post

Without running the numbers again, I agree that it's worthwhile.

You can probably save 1-2% without any closing costs. IF you just had a couple of years left, well, eh. But you have maybe 10 years left on the loan. This is what sways my answer. IT can add up to some significant savings, with time.

Personally, I would refi. It's not that much hassle, in my opinion.

The way I see it, the refi could save you $15-25k over the next 16 years or so.

IIRC your daughter is going to college in 3-4 years? And you had a "plan" of paying off mortgage before she started college (or at least has posted about it here

Saving Advice Forums

http://www.savingadvice.com/forums/personal-finance/53671-how-would-paid-off-mortgage-impact-financial-aid.html

If the refi can make that happen easier (more free cash flow to pay down mortgage) I would jump all over it for sure.

**jpg7n16** · 08-30-2010, 09:34 AM

Originally posted by MonkeyMama View Post

Personally, I would refi. It's not that much hassle, in my opinion.

Yeah absolutely.

Think of it like on an hourly rate: even if it were an absurdly long process, would you give even 4 or 10 hours of your time to save $15-20k guaranteed??

That's not a bad hourly rate at all. Even if it were a hassle - which I don't think it will be - IMO it'd be worth it.

**disneysteve** · 08-30-2010, 10:26 AM

jpg, thanks for those numbers. They are pretty impressive.
Jim, the idea to pay off the mortgage before college was a thought but would have really left us tight in other places, especially since both of our cars may need replacing between now and then.

I guess I need to start doing some research and refinance. Tough to pass up 15K or more in savings.

**jIM_Ohio** · 08-30-2010, 10:59 AM

Originally posted by disneysteve View Post

jpg, thanks for those numbers. They are pretty impressive.
Jim, the idea to pay off the mortgage before college was a thought but would have really left us tight in other places, especially since both of our cars may need replacing between now and then.

I guess I need to start doing some research and refinance. Tough to pass up 15K or more in savings.

I will build on jpg post

Here's what I calculated out: at your current rate ($697/month @ 5.875%) - you will have 193.4 payments left, for a total $134,784.40 paid to remove a balance of $87k. Meaning $47,784.40 paid in interest.

If you kept the payment the same ($697/month):

@4.25% - 165.1 payments; $115,041.44 paid to remove $87k = $28,041.44 interest (savings of $19,742.96)
@3.75% - 158.5 payments; $110,443.67 paid to remove $87k = $23,443.67 interest (savings of $24,340.73)

If you adjusted the payments down to have the same payoff date:

@4.25% - 193.4 payments of $622.17; pay $120,314.78 remove 87k = $33,314.78 interest (savings of $14,469.62)
@3.75% - 193.4 payments of $600.12; pay $116,050.74 remove 87k = $29,050.74 interest (savings of $18,733.66)

On 87k at 3.75% I have $26,883 of interest paid over 15 years.
Payment of $632.

$65 savings over current payment of $697

If that same $65 and only $65 is put into the mortgage, it is paid off 21 months sooner. (13 years)

$165 extra is a 46 month savings off original 15 year note (134 months of payments)
$265 extra is a 64 month savings off original 15 year note (116 months of payments)
$365 extra is a 78 month savings off original 15 year note (102 months of payments)
$465 extra is a 88 month savings off original 15 year note (92 months of payments)
$965 extra is a 120 month (10 year) savings off original (60 months of payments)
$1300/mo is the 48 mo payoff amount.

If you tried to pay off mortgage before DD went to college, that is the ball park of how much it would take.

If you planned to pay the $965 extra, consider that some ARMs might (should) be under 3.75% right now, and if the plan was to pay it off in 5 years or less, you might do better with an ARM. Most ARM have a cap so if you get a 2% rate, it can only go up X points from where you are when ARM started (so worst case might be a 5% rate, which is still less than you have now).

**jpg7n16** · 08-30-2010, 12:48 PM

? if the target is 10 years, here are the payments:

@5.875% - 120 payments of $960.43; total $115,251.15 remove 87k = $28,251.15 interest
@4.25% - 120 payments of $891.21; total $106,944.78 remove 87k = $19,944.78 interest
@3.75% - 120 payments of $870.53; total $104,463.94 remove 87k = $17,463.94 interest

I'm not sure where the $965 extra figure came from. That's more than the total needed at current interest rate. (I read "965 extra" as 632 + 965 extra = 1597 total)

Edit: ohhh that is for paying off 10 years ahead of schedule, not paying off in 10 years. My mis-read

On current schedule, you're looking at nearly $48k interest, so any of these 10 year plans is preferrable if being mortgage free is your goal.

I may personally argue that if you can refi down to 3.75%, you might consider paying the mortgage off slowly and investing the cashflow saved. If market performs to average, that'd be your best bet.

**jIM_Ohio** · 08-30-2010, 12:52 PM

Originally posted by jpg7n16 View Post

? if the target is 10 years, here are the payments:

@5.875% - 120 payments of $960.43; total $115,251.15 remove 87k = $28,251.15 interest
@4.25% - 120 payments of $891.21; total $106,944.78 remove 87k = $19,944.78 interest
@3.75% - 120 payments of $870.53; total $104,463.94 remove 87k = $17,463.94 interest

I'm not sure where the $965 extra figure came from. That's more than the total needed at current interest rate. (I read "965 extra" as 632 + 965 extra = 1597 total)

On current schedule, you're looking at nearly $48k interest, so any of these 10 year plans is preferrable if being mortgage free is your goal.

I may personally argue that if you can refi down to 3.75%, you might consider paying the mortgage off slowly and investing the cashflow saved. If market performs to average, that'd be your best bet.

I did not do anything with prior repayment schedule other than plug 87k into an ammortization table

I was pointing out how much was needed to pay off loan before his daughter starts college, which is in 4 years or less based on posts in other threads.

So the choices of

$965/mo saved earning maybe 2%-4% over next 4 years
--OR--
pay off mortgage then use the ~$1500/mo to fund college from cash flow.

JPG- Steve has posted on this a few times over last 3-4 years... so I "knew" things not present in this thread. I was building on that more than answering the original question at top of this thread.

**Slug** · 08-30-2010, 12:59 PM

Just closed on my re-fi today. 4.3875% <---(this was a good rate 3 weeks ago when I locked it :-)

Yeah, it's a bit of a pain of a process dealing with lenders and lawyers, but like others pointed out, the hourly rate for your time is well worth it in the long run.

I now have no HELOC 2nd mortgage, no escrow, and a lower monthly payment (if I want/need to pay less at some point). Win, Win, Win.

slug

Another mortgage refinance question