City-Data Forum The little-known mortgage that could save you big (loan, interest rate, escrow)
 User Name Remember Me Password [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.

09-16-2013, 11:03 AM
 Location: On The Road Full Time RVing 2,342 posts, read 2,785,721 times Reputation: 2214

.
The little-known mortgage that could save you big

This could really help some people.

Yahoo!

.

09-16-2013, 12:34 PM
 Location: New York 2,251 posts, read 4,160,232 times Reputation: 1607
Quote:
 Originally Posted by bumpus7 . The little-known mortgage that could save you big This could really help some people. Yahoo! .
At first found it hard to believe with 12 years left on their 30 year loan. At this point in a loan's lifetime more is going towards the principle, and less in going toward principle. Although having a higher interest rate and refinancing to a lower term might be a big benefit.

In the comparison writer mentioned - see there was not a huge difference in payment with the lower interest rate.

.....he recently helped a couple who only had 12 years left 7% on their mortgage refinance to a 10-year 3.25% mortgage. Saving a lot of money on interest as a result....... < Didn't mention balance or payment.

Comparison original loan;
\$300,000 x 30yr x 7% = P/I \$1995.91
Currently at 12 years (pay#216) balance equals \$194,082.48
Remaining principle \$1995.91 x 144 payments = \$287,411.04

Comparison refinance
\$194,082 + \$9704 (CC) = \$203786 x 120 x 3.25 = P/I \$1987.75
Knocking off 24 payments = \$47901.84
\$1987.75 x 120 = \$238,530.00

144 payments old loan vs 120 payments new loan = \$48881.04
Term reduced \$1995.91 x 24 = \$47901.84

Total savings in interest charged = \$979.20

The much greater savings is seen by the number of payments knocked off loan - not the reduction of the interest rate.

...

09-16-2013, 12:41 PM
 Location: Cary, NC 31,592 posts, read 55,295,005 times Reputation: 30150
Quote:
 Originally Posted by Modification Specialist At first found it hard to believe with 12 years left on their 30 year loan. At this point in a loan's lifetime more is going towards the principle, and less in going toward principle. Although having a higher interest rate and refinancing to a lower term might be a big benefit. In the comparison writer mentioned - see there was not a huge difference in payment with the lower interest rate. .....he recently helped a couple who only had 12 years left 7% on their mortgage refinance to a 10-year 3.25% mortgage. Saving a lot of money on interest as a result....... < Didn't mention balance or payment. Comparison original loan; \$300,000 x 30yr x 7% = P/I \$1995.91 Currently at 12 years (pay#216) balance equals \$194,082.48 Remaining principle \$1995.91 x 144 payments = \$287,411.04 Comparison refinance \$194,082 + \$9704 (CC) = \$203786 x 120 x 3.25 = P/I \$1987.75 Knocking off 24 payments = \$47901.84 \$1987.75 x 120 = \$238,530.00 144 payments old loan vs 120 payments new loan = \$48881.04 Term reduced \$1995.91 x 24 = \$47901.84 Total savings in interest charged = \$979.20 The much greater savings is seen by the number of payments knocked off loan - not the reduction of the interest rate. ...
Right.
I am more of an advocate for making additional principle payments monthly.
13 payments/year equivalent with the extra going to principle makes for a 17.5 year payoff of a 30 year loan. That turns into big numbers.

And, that 3.25% rate is history now. In the books.

09-16-2013, 12:51 PM
 Location: New York 2,251 posts, read 4,160,232 times Reputation: 1607
Quote:
 Originally Posted by MikeJaquish Right. I am more of an advocate for making additional principle payments monthly. 13 payments/year equivalent with the extra going to principle makes for a 17.5 year payoff of a 30 year loan. That turns into big numbers. And, that 3.25% rate is history now. In the books.

Good Job and keep it up

Sending extra towards principle. How you considered two extra, three extra payments a year?

Have you considered breaking payment into weekly payments..........

From your checking account - setting up up weekly installments.

We paid our 30 year loan off in 13 1/2 years ....

09-16-2013, 01:34 PM
 Location: Cary, NC 31,592 posts, read 55,295,005 times Reputation: 30150
Quote:
 Originally Posted by Modification Specialist Good Job and keep it up Sending extra towards principle. How you considered two extra, three extra payments a year? Have you considered breaking payment into weekly payments.......... From your checking account - setting up up weekly installments. We paid our 30 year loan off in 13 1/2 years ....
We agree in principle, but no one gets into our checking account but my wife...

She just sticks some X Prin on the coupon each month, and we are quite accelerated, too. I want to hold unencumbered title to a piece of dirt with a house on it!

09-17-2013, 03:00 AM
 672 posts, read 1,604,108 times Reputation: 585
Quote:
 Originally Posted by Modification Specialist At first found it hard to believe with 12 years left on their 30 year loan. At this point in a loan's lifetime more is going towards the principle, and less in going toward principle. Although having a higher interest rate and refinancing to a lower term might be a big benefit. In the comparison writer mentioned - see there was not a huge difference in payment with the lower interest rate. .....he recently helped a couple who only had 12 years left 7% on their mortgage refinance to a 10-year 3.25% mortgage. Saving a lot of money on interest as a result....... < Didn't mention balance or payment. Comparison original loan; \$300,000 x 30yr x 7% = P/I \$1995.91 Currently at 12 years (pay#216) balance equals \$194,082.48 Remaining principle \$1995.91 x 144 payments = \$287,411.04 Comparison refinance \$194,082 + \$9704 (CC) = \$203786 x 120 x 3.25 = P/I \$1987.75 Knocking off 24 payments = \$47901.84 \$1987.75 x 120 = \$238,530.00 144 payments old loan vs 120 payments new loan = \$48881.04 Term reduced \$1995.91 x 24 = \$47901.84 Total savings in interest charged = \$979.20 The much greater savings is seen by the number of payments knocked off loan - not the reduction of the interest rate. ...
I am trying to follow you here.... but it seems like you are just playing around with the terms/numbers to make your case.

It doesn't matter if it started off as a 30 year loan. With 12 years left... it is the exact same thing as a BRAND NEW 12 year loan at 7% (minus the closing costs if there are any). You pay the same amount towards principal and interest.

A new 12 year loan at 3.25% would only have a monthly payment of \$1711.. and that's using your \$9K worth of closing costs. That's a payment that is \$284 less per month.

You can't just knock off 24 months of \$1995 payments... because if you were to knock off 24 months from the original loan, your payments would go up to \$2253.

The lower interest rate saves you MUCH more than \$972.

If you compare apples to apples
Original Loan paid in 10 years at a monthly payment of \$2253: \$76,332 in interest
New Loan paid in 10 years at a monthly payment of \$1991: \$35,179 in interest

Original Loan paid in 12 years at a monthly payment of \$1995: \$92,328 in interest
New Loan paid in 12 years at a monthly payment of \$1711: \$42,587 in interest

09-17-2013, 12:50 PM
 Location: New York 2,251 posts, read 4,160,232 times Reputation: 1607
Quote:
 Originally Posted by volk2k I am trying to follow you here.... A new 12 year loan at 3.25% would only have a monthly payment of \$1711.. and that's using your \$9K worth of closing costs. That's a payment that is \$284 less per month. You can't just knock off 24 months of \$1995 payments..
If they were refinancing into a 12 year loan (144 months), yes the P/I payment = \$1708. The example is refinancing to a shorter 10 year (120 month) term, knocking off 24 months.

If they were at the 240 payment (10 years remaining), interest rate 7%, balance is \$192349.92 paying \$1995.91 Refinancing into a new loan \$192349.91 + \$9617.50 (CC) = \$201967.41 x 3.25% x 120 = new payment \$1970.45 (monthly difference \$25.46)

Show me the savings?

Estimating closing costs on a 10 year loan at 3.25% (par), will be paying full costs for that rate. Including origination, 3rd party, title, legal fees, and setup of new escrow. The maximum percentage on closing costs that can be charged is different between state. The average is across the country is 5%. The difference in closing costs is not a function of the lender - it's guideline set by state. This is a mortgage rule protecting borrowers from being charged (topic for another post)...

The point of my post by checking the facts - hate being sold on information that is misleading..

..

09-17-2013, 01:08 PM
 672 posts, read 1,604,108 times Reputation: 585
Quote:
 Originally Posted by Modification Specialist If they were refinancing into a 12 year loan (144 months), yes the P/I payment = \$1708. The example is refinancing to a shorter 10 year (120 month) term, knocking off 24 months. If they were at the 240 payment (10 years remaining), interest rate 7%, balance is \$192349.92 paying \$1995.91 Refinancing into a new loan \$192349.91 + \$9617.50 (CC) = \$201967.41 x 3.25% x 120 = new payment \$1970.45 (monthly difference \$25.46) Show me the savings? Estimating closing costs on a 10 year loan at 3.25% (par), will be paying full costs for that rate. Including origination, 3rd party, title, legal fees, and setup of new escrow. The maximum percentage on closing costs that can be charged is different between state. The average is across the country is 5%. The difference in closing costs is not a function of the lender - it's guideline set by state. This is a mortgage rule protecting borrowers from being charged (topic for another post)... The point of my post by checking the facts - hate being sold on information that is misleading.. ..
You are not using the correct numbers here.... if they were at payment 240 on a 7% \$300K loan, they would only have a balance of \$171,898.

If you refinanced to 3.25% with your \$9600 in closing costs (\$181,498 mortgage)... the payment is only \$1773 per month... That is over \$200 of savings per month.

This is not a matter of just reducing the term.... the interest rate makes a HUGE diference.

09-25-2013, 12:38 PM
 Location: New York 2,251 posts, read 4,160,232 times Reputation: 1607
Quote:
 Originally Posted by volk2k .....not using the correct numbers here..........

Refinancing into a shorter term, you are subtracting the number of physical payments. You are not correctly adding amount of the unpaid balance.

I was using a Texas Instruments BA-II Plus handheld mortgage calculator to analyze. Today used an online amortization calculator so you can follow the example. See link. https://www.valwoodpark.com/Excel/Lo...extra_pymt.xls

If a magician using a magic-wand to make 24 payments magically disappear by referencing to a shorter term. You are correct on current loan at payment #240 (10 yrs left), remaining principle balance could be around \$171,900 .

This is not the case
.. Borrowers are at payment 216 (12 yrs left), the principle balance is \$194,082.48.

My view - is a simple case of follow the money.

OP was stretching the truth about the benefits of lower rates. The current payment of \$1995 with twelve years remaining vs a new payment of \$1990 on ten year loan. My view is move savings is gained by the term reduction (\$47,000), not the (-\$5.00) less per month at the lower rate.

.....

.

Last edited by Modification Specialist; 09-25-2013 at 12:46 PM..

09-27-2013, 09:38 PM
 672 posts, read 1,604,108 times Reputation: 585
Quote:
 Originally Posted by Modification Specialist Refinancing into a shorter term, you are subtracting the number of physical payments. You are not correctly adding amount of the unpaid balance. I was using a Texas Instruments BA-II Plus handheld mortgage calculator to analyze. Today used an online amortization calculator so you can follow the example. See link. https://www.valwoodpark.com/Excel/Lo...extra_pymt.xls If a magician using a magic-wand to make 24 payments magically disappear by referencing to a shorter term. You are correct on current loan at payment #240 (10 yrs left), remaining principle balance could be around \$171,900 . This is not the case .. Borrowers are at payment 216 (12 yrs left), the principle balance is \$194,082.48. My view - is a simple case of follow the money. OP was stretching the truth about the benefits of lower rates. The current payment of \$1995 with twelve years remaining vs a new payment of \$1990 on ten year loan. My view is move savings is gained by the term reduction (\$47,000), not the (-\$5.00) less per month at the lower rate. ..... .
What the heck are you spouting off about... you said and I quote:
"If they were at the 240 payment (10 years remaining), interest rate 7%, balance is \$192349.92"

This is absolutely incorrect...... That is the approximate value with 12 years remaining.

Now... let's do the math AGAIN..... slowly.

Original Loan: \$300,000 at 7%... Monthly payment: \$1995.91
With 12 years left, the balance is \$194,081.

Now here's the decision... Keep paying the original loan... Or refinance into a 10 year loan at 3.25%

I'll go ahead and add \$10K worth of closing costs... to make the refinanced mortgage \$204,081. Happy?

A 10 Year \$204,081 mortgage at 3.25% yields a monthly payment of \$1994.26.

That payment is less than the original, and I have eliminated 2 years worth of payments.

How exactly is the OP stretching the truth? There are no two ways about it, the lower interest rate is the only reason why this works.

This has nothing to do with "magically" making any payments dissapper. In your first example you were trying to say:

"
144 payments old loan vs 120 payments new loan = \$48881.04
Term reduced \$1995.91 x 24 = \$47901.84

Total savings in interest charged = \$979.20
"

That math makes absolutely no sense. Why? Because you are not correctly accounting for the fact that you can't just reduce the Original term by (\$1995.91 x 24 = \$47901.84) without also increasing the monthly payment you would have with the Original Loan. With the Original loan, your monthly payment for the 10 years would have to increase to \$2253.54 in order to knock off those 24 payments.... and that is a huge difference.

I'm really not sure what your point is here.... Are you really trying to advise people that they would only save \$979.20 by refinancing into a 10-year 3.25% loan?

Let's map out all the scenarios one more time using a remaining balance of \$194,081 shall we:
• Original Loan (7%) paid in 10 years at a monthly payment of \$2253: \$76,332 in interest
• New Loan (3.25%/\$10K Closing Costs) paid in 10 years at a monthly payment of \$1994: \$35,230 in interest
• Original Loan (7%) paid in 12 years at a monthly payment of \$1995: \$93,328 in interest
• New Loan (3.25%/\$10K Closing Costs) paid in 12 years at a monthly payment of \$1713: \$42,649 in interest
On what planet do you not save at least \$30K by refinancing to a 3.25%? In fact if you foolishly advised your client to keep paying their original loan for 12 years at \$1995 instead of refinancing into a 10 year loan at 3.25%, you would have cost them over \$58,000 in extra interest.

Even if I add the \$10K Closing Costs back in as additional principal they would have had to pay, you still come out way ahead refinancing.

Please show me with your fancy calculator how my math is incorrect.
 Please register to post and access all features of our very popular forum. It is free and quick. Over \$68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned. Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.