Mortgage Refinancing Question

[cocojambo]

I did a hypothetical calculation for you using the mortgage refinancing calculator

Principal balance of mortgage = $400,000
Monthly Payment = ?
Current Interest Rate = 6.375%
Refinancing Interest Rate = 6%
Closing Costs = 1%

The result is:

Your monthly payment would be $$2577.21

"If you refinance your current 6.38% mortgage to a 6% mortgage, your monthly payment will decrease by $422.79 and you will pay an additional $75514.35 in interest charges over the life of the mortgage."

[VictorBurek]

Rates are going lower you can count on that but the problem is how do you know we hit bottom. It is like waiting to buy a home cause you want to wait til prices fall to their lowest point but the problem is you wont know when that is until after it has happened and prices start rising.

Right now rates on mortgage are around 5%, they will move lower but probably not below 4.5%. But they could turn higher and get to 6 to 6.5 very quickly.

[joe moving]

For calculating a payback, I like to not put any money out of pocket (closing costs added to loan amount) and look at taking the monthly difference (say, for me from 6% to 5% = $200 a month) and putting it right back into the mortgage as a pre-payment, and then considering when the mortgage balances will be equal. For me it takes about 2 years.

Then look at a selling time - say 7 years from today: It is a 17,000 dollar difference in loan balance, the new, lower APR having a lower loan balance. However this is leaving at least 1 piece out of the puzzle and that is the additional tax you are incurring by having lower interest rate... This could reduce the amount of money you are ACTUALLY saving, so it's not really $200 for me.

Another thing is if you are making significant pre-payments, the mortgage rate is much less important. In fact I have done calculations where adding 3k into the loan amount to fund the re-fi is causing me to actually end the mortgage term later.