Posted on: 01st Mar, 2011 09:21 am
my wife and i are 3 years into a 30 year fixed mortgage on our new home. we currently owe around $150k on our mortgage. our current interest rate is 5.25%. our payment is around $1275. that breaks down as $200 to principle, $675 to interest, and $400 for escrow (taxes). we pay an extra $100 a month to the principle to reduce the number of years of our mortgage. we live in san antonio texas. we live confortably now and put money in savings each month. i think it would be a good idea to refinance to a 15 year mortgage if the overall payment would be around the same as i am paying right now or if it goes up a little. what would you recommend and what are my options as far as rolling any closing costs into the loan?
Hi brycebryce,
You can refinance your existing mortgage into a 15 year fixed rate loan provided you have equity in your property. Moreover, refinance will make sense only if you plan to stay in the property for a longer period of time. However, it won't be a good option in my opinion to roll in the closing costs in the loan as it will increase your interest rates. It will be better to pay the closing costs upfront.
Thanks
You can refinance your existing mortgage into a 15 year fixed rate loan provided you have equity in your property. Moreover, refinance will make sense only if you plan to stay in the property for a longer period of time. However, it won't be a good option in my opinion to roll in the closing costs in the loan as it will increase your interest rates. It will be better to pay the closing costs upfront.
Thanks
Again, was logged in and then somehow got logged off before posting:
Brycebryce, If someone rolls the closing costs into the loan it should not increase the interest rate. Taking a higher interest rate is typically used when someone wants to cover some or all non-recurring closing costs without having to pay them out of pocket. It does not mean you opt for a higher interest rate to cover these costs and then add the closing costs again into the loan amount. If you did, you would essentially be paying the closing costs twice which of course makes no sense.
Basically, there are three ways to pay closing costs. In cash which provides the lowest net cost if you plan to stay in the loan/home a certain period of time, add the closing costs (some/all) to the loan amount, or taking a higher interest rate. If not paying the closing costs out of pocket, then you would have to determine whether it would be better to take a higher interest rate or add the closing costs into the loan based on time frames and other specific data. For this you would need a comparison calculator to give you an accurate answer on which would be best.
To address your other question, a 15 year loan will probably run you close to $200 more a month than you are currently paying including the extra payment you make. To know for sure, you would first need to know what rates and fees you qualify and make a selection to get the actual payment.
Another option is to consider a 20 year fixed rate loan which would probably afford you a monthly payment close to the principal and interest payments you currently make now.
Bottom line is if you can safely afford to make the higher extra monthly payment by refinancing into a shorter term, lower interest rate loan, then go for it. If not, then stay with what you have and make extra payments like you have been doing. Either way you will save interest and pay off the loan sooner.
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Brycebryce, If someone rolls the closing costs into the loan it should not increase the interest rate. Taking a higher interest rate is typically used when someone wants to cover some or all non-recurring closing costs without having to pay them out of pocket. It does not mean you opt for a higher interest rate to cover these costs and then add the closing costs again into the loan amount. If you did, you would essentially be paying the closing costs twice which of course makes no sense.
Basically, there are three ways to pay closing costs. In cash which provides the lowest net cost if you plan to stay in the loan/home a certain period of time, add the closing costs (some/all) to the loan amount, or taking a higher interest rate. If not paying the closing costs out of pocket, then you would have to determine whether it would be better to take a higher interest rate or add the closing costs into the loan based on time frames and other specific data. For this you would need a comparison calculator to give you an accurate answer on which would be best.
To address your other question, a 15 year loan will probably run you close to $200 more a month than you are currently paying including the extra payment you make. To know for sure, you would first need to know what rates and fees you qualify and make a selection to get the actual payment.
Another option is to consider a 20 year fixed rate loan which would probably afford you a monthly payment close to the principal and interest payments you currently make now.
Bottom line is if you can safely afford to make the higher extra monthly payment by refinancing into a shorter term, lower interest rate loan, then go for it. If not, then stay with what you have and make extra payments like you have been doing. Either way you will save interest and pay off the loan sooner.
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If you keep your current schedule of $100 extra, you will pay off your mortgage in December of 2031 with a total of $118,804 paid in interest. This assumes you started in 2008. If you refinanced now to a 15 year at 4%, you would pay off your home in March 2026 paying a total of $49,715 in interest. Add the 3 years worth of interest you have paid so far ($24,430) to the $49,715 for a total interest if you refinanced of $74,145 and refinancing will save you $44,659 in interest less the cost of the refinance.
If your goal is to pay your home off and you have the financial means to accelerate the payments and lower the rate at the same time, you will put yourself in a better financial position by doing so. This one is a "no brainer".
Always consult a licensed, experienced loan officer for mortgage advice.
If your goal is to pay your home off and you have the financial means to accelerate the payments and lower the rate at the same time, you will put yourself in a better financial position by doing so. This one is a "no brainer".
Always consult a licensed, experienced loan officer for mortgage advice.
greg3, why in the world would you add interest already paid on the current loan to the interest on a potential new loan to make a comparison? This makes absolutely no sense at all. If you can point out a reputable source that says this is the correct way to make a refinance comparison, please provide it here but I seriously doubt if one exists.
Jim,
When comparing the total cost of their mortgage one would logically include interest already paid as that is money they already spent. Doing a comparison and not including interest they have already contributed would not be correct. If they refinance now to a 15 year term, they have already paid 3 years worth of interest, what would you suggest one do with that number?
Stay with what they have and the total interest paid is $118,804
Refinance now to a 15 and they pay $49,715 in interest for 15 years plus the $24,430 they already paid.
What part of that are you having difficulty understanding? Some people may like to use fuzzy math to make the scenario seem better than it is; I am not one of those. The numbers I gave are accurate and the "reputable source" is me along with basic math.
When comparing the total cost of their mortgage one would logically include interest already paid as that is money they already spent. Doing a comparison and not including interest they have already contributed would not be correct. If they refinance now to a 15 year term, they have already paid 3 years worth of interest, what would you suggest one do with that number?
Stay with what they have and the total interest paid is $118,804
Refinance now to a 15 and they pay $49,715 in interest for 15 years plus the $24,430 they already paid.
What part of that are you having difficulty understanding? Some people may like to use fuzzy math to make the scenario seem better than it is; I am not one of those. The numbers I gave are accurate and the "reputable source" is me along with basic math.
So you better understand Jim,
What if they had paid 10 years on this same scenario instead of 3 and wanted to know if refinancing to a 15 year at a lower rate would help. One would have to consider that they have already paid $76,395 in interest and would pay an additional $49,715 on the new 15 year note. This would cost them a total of $126,110 in interest to refinance versus $118,804 if they kept what they have now. In that scenario, it would be a bad move to refinance.
Make sense now?
What if they had paid 10 years on this same scenario instead of 3 and wanted to know if refinancing to a 15 year at a lower rate would help. One would have to consider that they have already paid $76,395 in interest and would pay an additional $49,715 on the new 15 year note. This would cost them a total of $126,110 in interest to refinance versus $118,804 if they kept what they have now. In that scenario, it would be a bad move to refinance.
Make sense now?
Gregorio, not only does this not make sense it is completely absurd. If we followed your logic, then shouldn't we also add the down payment and closing costs paid on the current loan into the cost of the new loan? The answer would of course be NO as this would make no sense either.
To determine financially if it is a good idea to refinance your current loan, you need to compare all the numbers on both loans going forward - not backward. Adding interest already paid on a current loan to the interest that would be paid on a future loan to make an accurate comparison is wrong and downright bad advice - period.
To determine financially if it is a good idea to refinance your current loan, you need to compare all the numbers on both loans going forward - not backward. Adding interest already paid on a current loan to the interest that would be paid on a future loan to make an accurate comparison is wrong and downright bad advice - period.
Jim, you are confused. No one is adding anything into the cost of the new loan. One is merely looking at the total cost of 2 scenarios and picking the cheaper one. You obviously don't understand an amortization schedule and you obviously don't realize that restarting a mortgage causes the amortization schedule to reset. Yes indeed we are looking at what happens going forward, but in order to do that you need to determine where they are in the amortization schedule and what they have paid so far. In the second scenario I gave you, where they hypothetically paid for 10 years; refinancing would cause them to pay MORE to pay off their home than if they did not refinance.
I'll try again and make it easy for you to understand this time:
If they paid 10 years so far and had paid $76,395 of $118,804 in interest ($118,804 being the total if they kept adding the $100 extra payment) That would mean FROM THIS POINT FORWARD (Since that's the way you understand it) They would pay $42,409 more in interest. The rest of their payments would be reducing principal.
You with me so far?
If they refinanced... they would start a new 15 year term and after 15 years they would pay $49,715 in interest.
Both are starting with an assumed date of TODAY as a refinance date. Again I ask; what don't you understand about this?
You are either a very naive consumer, or a scoundrel loan officer too ashamed to post credentials because you sound like someone who would recommend a refinance to a person with 5 years left on a 30 year fixed.
I suggest you study an amortization table, or post your NMLS# so everyone knows who you are.
I'll try again and make it easy for you to understand this time:
If they paid 10 years so far and had paid $76,395 of $118,804 in interest ($118,804 being the total if they kept adding the $100 extra payment) That would mean FROM THIS POINT FORWARD (Since that's the way you understand it) They would pay $42,409 more in interest. The rest of their payments would be reducing principal.
You with me so far?
If they refinanced... they would start a new 15 year term and after 15 years they would pay $49,715 in interest.
Both are starting with an assumed date of TODAY as a refinance date. Again I ask; what don't you understand about this?
You are either a very naive consumer, or a scoundrel loan officer too ashamed to post credentials because you sound like someone who would recommend a refinance to a person with 5 years left on a 30 year fixed.
I suggest you study an amortization table, or post your NMLS# so everyone knows who you are.
First, I am far from a naive consumer or a scoundrel loan officer. For your information, among some of the credentials I attained are Certified Financial Planner, Chartered Financial Consultant and Registered Investment Advisor. I also have an MBA. So I actually do have a professional background, unlike yourself. From what I can tell you are a mortgage broker which is another term for a mortgage loan salesperson.
For the past 8 years, I have researched, studied and developed mortgage software and tools in order to help the public from being taken advantage of by people in the business claiming they know more than they actually do. You are a perfect example of who I am referring to.
So before twisting the facts and making misleading statements, I suggest you obtain a modicum of knowledge before posting again. You should also consider taking down that blatant "Get Quote" link as I hardly believe you to be a reputable source to get a home loan through. Not based on the lack of knowledge you have already displayed which is mounting by every post you make.
For the past 8 years, I have researched, studied and developed mortgage software and tools in order to help the public from being taken advantage of by people in the business claiming they know more than they actually do. You are a perfect example of who I am referring to.
So before twisting the facts and making misleading statements, I suggest you obtain a modicum of knowledge before posting again. You should also consider taking down that blatant "Get Quote" link as I hardly believe you to be a reputable source to get a home loan through. Not based on the lack of knowledge you have already displayed which is mounting by every post you make.
Jim,
You have serious issues and an inferiority complex. If you have a problem with my numbers, I would love to hear yours. You have not said how I am wrong...
why...
because I am not.
The numbers are correct, and the analysis is sound and you are just bent because I responded to your ill thought out post.
As I pointed out, what the OP is asking would be a good financial move based on the information given. When considering a refinance, you MUST take into consideration how far you are into your current mortgage to be able to determine if a refi is a good move. This person is currently paying an extra $100 into the principal so you MUST look at how this will effect amortization. The only way to do so will be to project the full 30 year term with the extra payments versus the 15 year term at the lower rate. At 3 years in, it works in their favor to refi to a 15... at 10 years in, it would not. It makes a HUGE difference how long they have paid into their mortgage and anyone that does not understand that... especially one that would claim to be an MBA and CFP, would be a moron MBA/CFP. To suggest that one look solely at the balance and compare a brand new 15 year at 4% to a 30 year that has amortized for 10 years at 5.25% with accelerated payments of $100 per month, truly has no business offering any advice other than "would you like fries with that?"
You have serious issues and an inferiority complex. If you have a problem with my numbers, I would love to hear yours. You have not said how I am wrong...
why...
because I am not.
The numbers are correct, and the analysis is sound and you are just bent because I responded to your ill thought out post.
As I pointed out, what the OP is asking would be a good financial move based on the information given. When considering a refinance, you MUST take into consideration how far you are into your current mortgage to be able to determine if a refi is a good move. This person is currently paying an extra $100 into the principal so you MUST look at how this will effect amortization. The only way to do so will be to project the full 30 year term with the extra payments versus the 15 year term at the lower rate. At 3 years in, it works in their favor to refi to a 15... at 10 years in, it would not. It makes a HUGE difference how long they have paid into their mortgage and anyone that does not understand that... especially one that would claim to be an MBA and CFP, would be a moron MBA/CFP. To suggest that one look solely at the balance and compare a brand new 15 year at 4% to a 30 year that has amortized for 10 years at 5.25% with accelerated payments of $100 per month, truly has no business offering any advice other than "would you like fries with that?"
"For the past 8 years, I have researched, studied and developed mortgage software and tools in order to help the public from being taken advantage of by people in the business claiming they know more than they actually do. "
Oh I get it now, you are one of those that preys on the public under the guise of "helping them" with bogus mortgage acceleration software that you sell for $3500, or some other bogus "software". It's all so clear now why you are afraid to post your name and so hostile to anyone that gives a sound analysis of the true mortgage market.
It's interesting that you would rail against someone like me who is against needless refinances. Its' pretty clear from my posts that I don't believe that refinancing is the end-all-cure-all. You argue that my rationale for advising a consumer not to refinance is flawed...
Why, so you can sell them your "software"? You appear to believe or at least want others to believe, that you can, through your "research" and "studies", help consumers by selling them your useless garbage disguised as a mortgage "tool".
What a huge JOKE!
They don't need your "software", they need an HONEST person to say. YOU DON'T NEED TO REFINANCE"...
Oh I get it now, you are one of those that preys on the public under the guise of "helping them" with bogus mortgage acceleration software that you sell for $3500, or some other bogus "software". It's all so clear now why you are afraid to post your name and so hostile to anyone that gives a sound analysis of the true mortgage market.
It's interesting that you would rail against someone like me who is against needless refinances. Its' pretty clear from my posts that I don't believe that refinancing is the end-all-cure-all. You argue that my rationale for advising a consumer not to refinance is flawed...
Why, so you can sell them your "software"? You appear to believe or at least want others to believe, that you can, through your "research" and "studies", help consumers by selling them your useless garbage disguised as a mortgage "tool".
What a huge JOKE!
They don't need your "software", they need an HONEST person to say. YOU DON'T NEED TO REFINANCE"...
Sorry, one more,
I just looked up your Linkedin page...
Interesting, it does not say anything like you just said.
Also it appears you are currently unemployed? I guess that explains the angst!
You don't have an MBA.. or at least you didn't list one. One would think that would be something to list!
Interesting!
I just looked up your Linkedin page...
Interesting, it does not say anything like you just said.
Also it appears you are currently unemployed? I guess that explains the angst!
You don't have an MBA.. or at least you didn't list one. One would think that would be something to list!
Interesting!
If you continue to pay $100 extra on your required monthly principal and interest payment of $875, the present $150,000 balance will pay off in 257 months and from today you will have paid a total of $250,575.
If you refinance to 15 year loan and payment stays the same as you pay now, $975, you would need a rate of 2.14% and that does not exist.
To pay off your existing $150,000 balance in 15 years from today, you would have to pay monthly $1,205.81, or about $230 more than you pay now.
If you got a new 15 year mortgage at around 4.500%, your monthly P&I would be $1,147.49 on $150,000 (no closing costs included for this calculation). That is only $58 a month less than if you just pay extra on what you have now. Not worth refinancing at 4.500% to 15 year fixed and worse after considering closing costs.
If you want to pay off in 15 years, DO NOT refinance, just pay extra $330 every month. In 180 months you will have paid $198,900.
If you refinance to 15 year loan and payment stays the same as you pay now, $975, you would need a rate of 2.14% and that does not exist.
To pay off your existing $150,000 balance in 15 years from today, you would have to pay monthly $1,205.81, or about $230 more than you pay now.
If you got a new 15 year mortgage at around 4.500%, your monthly P&I would be $1,147.49 on $150,000 (no closing costs included for this calculation). That is only $58 a month less than if you just pay extra on what you have now. Not worth refinancing at 4.500% to 15 year fixed and worse after considering closing costs.
If you want to pay off in 15 years, DO NOT refinance, just pay extra $330 every month. In 180 months you will have paid $198,900.
