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Old 04-14-2009, 12:18 PM
 
Location: Up Yonder
293 posts, read 497,558 times
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Hi everyone. I have a question about refinancing. I currently have a 30 year mortgage at 6%. I called the bank where I took the loan out and the woman I spoke to said that refinancing right now would only save me $30 a month. I currently owe around $58,000 (taken out for home improvements). With rates going as low as 4.7%, I just wonder if she correct. Opinions? Thanks
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Old 04-14-2009, 07:45 PM
 
28,461 posts, read 75,149,554 times
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You can use any of the online calculators to verify -- that does sound about right.

In situations like yours the question is NOT really about how you less you send out every month, but the TOTAL TIME TO OFFSET ANY ADDITIONAL UPFRONT COSTS. If you can find a lender to do this refi for next to nothing than it makes sense, otherwise you have really think how likely it is that you will recoup the costs before pay-off or selling.

The other factor that works against you is that loan amounts under a certain amount tend to NOT attract the most aggressive lenders. In some areas that 'floor' is $50K and you are really close to that.

Now if you have equity to take out THAT is a whole other set of questions...
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Old 04-14-2009, 11:09 PM
 
Location: San Jose (Willow Glen)
180 posts, read 649,541 times
Reputation: 96
Quote:
Originally Posted by Jackie2008 View Post
Hi everyone. I have a question about refinancing. I currently have a 30 year mortgage at 6%. I called the bank where I took the loan out and the woman I spoke to said that refinancing right now would only save me $30 a month. I currently owe around $58,000 (taken out for home improvements). With rates going as low as 4.7%, I just wonder if she correct. Opinions? Thanks
It's about $60/month in interest.

Payment would go down about $48/month and you would pay about $12 more to principal.

Assuming no points and 4.75% rate and $2,500 in closing costs, it would take you about 3.5 years to breakeven.
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Old 04-15-2009, 08:30 AM
 
Location: Visitation between Wal-Mart & Home Depot
8,308 posts, read 35,832,414 times
Reputation: 7117
Hmmm...

It sounds like she's about right. Your monthly payment at 6% should be about $360, right? (Assuming the original loan amount was $60K) If you refi to 4.7% your monthly rate drops to about $300. Whether or not this is worth it depends on how long you will be in the house and what kind of closing costs you will have to pay. If you pay out your existing loan in 30 years you will pay $67,185 in interest over and above your principal. If you refi and pay it out over 30 years you will pay $50,291 in interest for a savings of about $17,000 over the life of the loan.

If you can keep the closing costs low this probably makes sense, but its still pretty marginal. If you can afford to throw an extra $145/month at the loan you can cut the term in half and save about $40,000 in interest over the long term, which, to me anyway, makes more sense than spending a couple thousand to save $60/month.

Play around with this calculator... Karl's Mortgage Calculator
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Old 04-15-2009, 08:52 PM
 
Location: San Jose (Willow Glen)
180 posts, read 649,541 times
Reputation: 96
Quote:
Originally Posted by jimboburnsy View Post
Hmmm...

It sounds like she's about right. Your monthly payment at 6% should be about $360, right? (Assuming the original loan amount was $60K) If you refi to 4.7% your monthly rate drops to about $300. Whether or not this is worth it depends on how long you will be in the house and what kind of closing costs you will have to pay. If you pay out your existing loan in 30 years you will pay $67,185 in interest over and above your principal. If you refi and pay it out over 30 years you will pay $50,291 in interest for a savings of about $17,000 over the life of the loan.

If you can keep the closing costs low this probably makes sense, but its still pretty marginal. If you can afford to throw an extra $145/month at the loan you can cut the term in half and save about $40,000 in interest over the long term, which, to me anyway, makes more sense than spending a couple thousand to save $60/month.

Play around with this calculator... Karl's Mortgage Calculator
Throwing extra money at the principal is irrelevant when it comes to refinancing or not. You can choose to do that anyway and apply it toward the lower rate...the savings is still there.

The way to look at breakeven is simple. Take the existing interest rate ('ER') and subtract new rate ('NR') to find the savings rate ('SR').

Multiply SR by principal balance and divide by 12 to find the savings / month.
Then take the refinancing fees and divide by the savings/month and that's the breakeven in months.
If you think you will be in the home longer than the breakeven, then it's worth it. If not, then it's not.

Applying extra payments to principal will only marginally affect this analysis.

There is also a tax implication of having reduced mortgage interest write off assuming the borrower itemizes taxes.
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Old 04-17-2009, 10:08 AM
 
Location: Visitation between Wal-Mart & Home Depot
8,308 posts, read 35,832,414 times
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Quote:
Originally Posted by AndrewSoss View Post
Throwing extra money at the principal is irrelevant when it comes to refinancing or not. You can choose to do that anyway and apply it toward the lower rate...the savings is still there.

The way to look at breakeven is simple. Take the existing interest rate ('ER') and subtract new rate ('NR') to find the savings rate ('SR').

Multiply SR by principal balance and divide by 12 to find the savings / month.
Then take the refinancing fees and divide by the savings/month and that's the breakeven in months.
If you think you will be in the home longer than the breakeven, then it's worth it. If not, then it's not.

Applying extra payments to principal will only marginally affect this analysis.

There is also a tax implication of having reduced mortgage interest write off assuming the borrower itemizes taxes.
Got it.

I brought up paying down principal as an alternative to refinancing because it may be difficult to find closing costs under $3,000 and I don't know how much sense it makes to refi a loan that small for a payout beyond 4 years. Rolling the closing into the new loan would make payout more like 8 years (considering interest on the closing costs). Either way, I'm not sure that the scale of the savings justifies much expenditure.

Really, the entire loan amount could be paid off in about 8 years with a concerted effort and that is where real money can be saved.
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Old 04-22-2009, 04:55 PM
 
Location: Up Yonder
293 posts, read 497,558 times
Reputation: 263
Quote:
Originally Posted by jimboburnsy View Post
Got it.


Really, the entire loan amount could be paid off in about 8 years with a concerted effort and that is where real money can be saved.

Not when you have lost your job. That is why I asked the question in the first place. I am trying to save money right now.
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Old 04-23-2009, 12:02 AM
 
Location: San Jose (Willow Glen)
180 posts, read 649,541 times
Reputation: 96
Quote:
Originally Posted by Jackie2008 View Post
Not when you have lost your job. That is why I asked the question in the first place. I am trying to save money right now.
If you lost your job it's a moot point since you wont get a new loan anyway.
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Old 04-29-2009, 06:39 PM
 
Location: Up Yonder
293 posts, read 497,558 times
Reputation: 263
Quote:
Originally Posted by AndrewSoss View Post
If you lost your job it's a moot point since you wont get a new loan anyway.
Not according to my bank.
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Old 04-29-2009, 08:40 PM
 
28,461 posts, read 75,149,554 times
Reputation: 18518
No job generally means no income. No income == no NEW loan.

Now if you want have your existing loan MODIFIED and your lender realizes that if that do not help you are then YOUR HOUSE become THEIR PROBLEM in a REAL BIG HURRY, they might be willing to help out...
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