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In the past few weeks the market has seen average rates on[...]
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Adjustable Rate Mortgages with lots of payment options have fallen out of favor, and banks are falling over themselves to help their customers refinance into more stable notes. But if you already have a stable 30 year fixed mortgage, should you consider refinancing it now?
Here are some examples of how costs might differ if you refinanced your home mortgage loan.
Case 1: California
600,000 home, purchased in 2004, with a 450,000 mortgage at 5.625
Currently paying: $2,590.45/month.
Principal: $599.34
Interest: $1,991.11
Current Loan Balance: $424,171.84
What’s left: 424,000 plus 383,000 in interest over 26 years.
If you Refinance for 30 years at 5.30, here’s what you would face:
Monthly Payment: $2,354.49
Monthly Principal: $481.82
Monthly Interest: $1,872.67
What’s left: 424,000 plus 424,000 in interest over 30 years.
You get to drop your monthly payments, but because the loan is stretching out over an extra four years, you end up paying an extra 41000 in interest over the life of the loan. Plus you have any additional closing costs and refinancing costs to put the new loan in place.
If you instead continued to make your payments at 2590 per month, at the new interest rates, you would pay of the loan in 292 months, about 24 years and spend a total of 424000 plus 331,000 in interest. a net savings of over 50,000 from the original loan and almost 100000 over the new loan.
Here’s a page with some mortgage calculators from Homecomings.Com. As part of GMAC they just got bailed out and have plenty of money to spend.
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Glenn Bemis | January 13th, 2009 at 4:12 pm #
I have noticed that some mortgage refinance experts advise that if you will save more than 3/8 of one percent on your mortgage rate, then you should consider refinancing. If you save less than this, then points may cost you more than your savings from lower interest rates.
Joe Gibbs | February 9th, 2009 at 12:06 am #
Please consider that if you refinance, you should be willing to entertain the thought of shortening the amount of your loan. Refinancing from a 30 year to a 15-year loan is something most people can do – will do, if they are educated on the benefits. Unfortunately, most people you should ask the lender about the best course of action.