mortgage refinance and pre-payment

[greenskeeper]

current mortgage

$218500 (275 mo left from pre-paying)

$1447.05 per month (5.875%)

$740 xtra per month = payoff jun 7,2023

refinance

$223000 (30 yrs)

$1120.65 per month (4.43%)

$740 xtra plus $326.40 "savings"

$1066.40 xtra per month = payoff sept 2022


It looks like all the refinancing only changes the payoff date to 9 months earlier? Is my math correct?

This is because of rolling the closing into the loan balance, and aggressively paying down the loan with extra principal payments.

Is it worth it to refinance? I guess I can have the comfort of the lower monthly payment should I need to fall back on it.

[MonkeyMama]

Your numbers do look correct.

I find that interesting. I suppose the interest rates is just so low and you are pre-paying so much either way. Well, obviously the costs aren't helping.

That said, paying the same amount and shaving off 9 months, is nothing to sneeze at. & the flexibility is certainly nice. But, on the flip side, is not terribly compelling. Unless cash flow is tight or I thought there is some job uncertainty in my future, etc. Otherwise, I think I could mostly flip a coin. I probably wouldn't see the point to go through the hassle.

ANother scenario would be *worst case.* What if you refinanced and did not pre-pay a dime? Versus stopped pre-paying on current mortgage. I would hope there would be pretty substantial savings in that scenario. But that also may mean nothing to you if you are intent on rapid payoff.

I am personally looking at lowering my interest rate by 0.875%. If we continued to make the same payment, would advance payoff by 7 years. So, seems kind of like a no-brainer. Difference? No pre-payments to speak of, payinc cash for closing costs, but am considering decent cash infusion to get there. Would lower our mortgage payment from $1100 to $900. A 20-year mortgage would give us a similar trajectory, with a bigger payment, but I think I will just take the 30-year and commit myself to the 20-year payoff. The interest rate is the same either way.

You just have to run the numbers in these cases. Sometimes a small rate drop is VERY worth it. Sometimes a bigger rate drop - not so much.

[greenskeeper]

I also ran the numbers for the same monthly payment for each loan $1447.05 ($1120.65+$326.40 refi)

current = nov 2034

refi = jan 2031

interesting that the gap closes the faster you pay down, which makes sense because less interest is calculate (or saved depending on how you look at it)

[greenskeeper]

Originally Posted by MonkeyMama

Your numbers do look correct.



ANother scenario would be *worst case.* What if you refinanced and did not pre-pay a dime? Versus stopped pre-paying on current mortgage. I would hope there would be pretty substantial savings in that scenario. But that also may mean nothing to you if you are intent on rapid payoff.

current mortgage would be done in nov 2034, refi would be 30 yrs from now (dec 2041)

what's hurting is the $4500 closing costs, and if I paid cash I would just put it towards the principal of the current loan. The $4500 also includes escrow deposit.

[riverwed070707]

It's just not that substantial of a drop in the interest rate. What happens if you refi to a 15 year mortgage? Obviously your payment will go up but I don't think it will be higher than what you're already paying and I think the savings will be more, especially because 15 year mortgages qualify for lower rates and sometimes lower closing costs as well.

ETA If the payment on a 15 year is more than you want to be committed to, could you slow your extra payments for a while to build up a significant chuck you could put toward principal to get your payment down to a comfortable number?

[MonkeyMama]

riverwed has a good point. 15-year rates are *really* low right now.

[Petunia 100]

Originally Posted by greenskeeper

current mortgage would be done in nov 2034, refi would be 30 yrs from now (dec 2041)

what's hurting is the $4500 closing costs, and if I paid cash I would just put it towards the principal of the current loan. The $4500 also includes escrow deposit.

Does that mean you would be receiving a refund from your current escrow account? If so, have you included that in your calculations?

[greenskeeper]

Originally Posted by Petunia 100

Does that mean you would be receiving a refund from your current escrow account? If so, have you included that in your calculations?

applied to principal balance, starting new escrow with new loan.

[greenskeeper]

Although it pains me to "temporarily" increase the balance on the loan, I think I am going through with the refinance.

I will be able to "fall back" on a base payment that is $350 less per month in an emergency, or continue to pay the same amount per month and cut 9 months off the length of the loan based on my current accelerated payoff strategy.

[riverwed070707]

You never commented on my post...why is a 15 year not an option when it would potentially save so much more in the longrun?

[greenskeeper]

Originally Posted by riverwed070707

You never commented on my post...why is a 15 year not an option when it would potentially save so much more in the longrun?

i guess the "lock in" to a higher payment

my current plan of attack applied to the new 30yr loan would pay it off in under 11 years.

life happens and plans don't always work out.

I have also figured in paying cash for the closing, but the difference in monthly payments isn't significant to me.

[graceful]

Originally Posted by greenskeeper

Although it pains me to "temporarily" increase the balance on the loan, I think I am going through with the refinance.

I will be able to "fall back" on a base payment that is $350 less per month in an emergency, or continue to pay the same amount per month and cut 9 months off the length of the loan based on my current accelerated payoff strategy.

Originally Posted by riverwed070707

You never commented on my post...why is a 15 year not an option when it would potentially save so much more in the longrun?

ITA. Check into the interest rates for 25, 20, and 15 year refinances. Especially since you only have about 22 years left on your 30 on paper. The lower interest rates may make the transaction more financially attractive.

We JUST closed on our refinance. Went from a 4.875% 30-yr to a 3.375% 15-yr. We were about 2 years into the 30-yr loan but had paid $1000 extra a month toward principal. So, we had 24 yrs, 4mth left w/o any more extra payments or 12 years, 4 months left if we continued with $1000 extra a month.

Our monthly mortgage went UP by $416, however, the loan would be paid off in 15 years with no extra monthly payments. It would be paid off in 11 years, 9 months if we make extra monthly payments of $500 which is still slightly less than what we are currently paying. The interest savings is substantial.

GOOD LUCK!!

[riverwed070707]

Originally Posted by greenskeeper

i guess the "lock in" to a higher payment

my current plan of attack applied to the new 30yr loan would pay it off in under 11 years.

life happens and plans don't always work out.

I have also figured in paying cash for the closing, but the difference in monthly payments isn't significant to me.

I see where you're coming from and I understand if you're not comfortable being committed to the higher payment, but have you looked at the numbers? I'm just wondering if that would be enough to sway you. It might be far more than you think with less of a commitment to "extra" payments.

[greenskeeper]

closed out the refi, $326/month reduction in monthly payment which will be rolled into the new loan. Should be able to pre-pay $1041 per month towards the principal.

Nice to have a $1k "cushion" in our monthly budget.

and no, my wife and I do not make a lot of money combined, but we live below our means.