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Old 06-29-2017, 08:53 AM
Location: 5,400 feet
2,762 posts, read 2,701,930 times
Reputation: 3956


Originally Posted by burninsoul View Post
Assuming I keep the house for 5 years, I get:
Current loan: total paid interest 60k (including MIP) and principal balance of 265k
Refinance at 4.25% with 27k down: total paid interest of 56k and principal balance of 245k

But in the second case my minimum monthly payment will be 200$ less than in the first one.
Then assuming that I keep paying the same amount and these 200$ go into principal, will my balance be
245k - 60months*200$/month=233k?

So after 5 years principle with 4.25% will be 32k lower. This should be compared to 27k that I have to put down. ROI of 5k over 5 years, which is ~3.7% annual.

Both loans are 30 year fixed rate. With the current loan, MIP stays for life of the loan.
First, if you put $27K into a new loan, then you lose the use of that $27K over the 5year period you are using. There are several different conservative investments you could make that could return 3-4%/year (higher returns are possible with riskier investments). That loss should be factored in a cost of the new loan (or benefit of the existing).

Second, your proposal is premised on out of pocket closing costs being $2K and $25K going to down payment. Make sure that is so as the whole determination depends on it.

Third, the balance calcs are a little more complicated. You need to look at your existing amortization schedule to find out what your loan balance will be in 5 years and compare it to the new loan balance in 5 years (plenty of online calculators can do that).

Last, only you can determine if you are disciplined enough to add $200 to every monthly mortgage payment.
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