Refi or not?

[etbass77]

My original mortgage was for $228,500 - 30 yr - 6.75% in 1997. I am 12 years into the mortgage and have a remaining principal of $190,000. My monthly payment-P&I only is $1,475. Am I better off refinancing - $190,000 plus $7,000 closing costs @ 4.5% for 15 yrs (P&I would be about the same as the original mortgage) OR just making additional monthly principal payments of say $500 to escalate the payout. Both scenarios would save interest, but which one is the most efficient?

[Merch]

I would probably refinance. You are paying $7,000 for the closing (which I think is high) but you are saving 2.25% or 225 basis points a year in interest. In the first 2 years, you will be saving $9,000 - $10,000 in the first few years.

I just refinanced from 30 yr 5.5% to a 15 yr 4.55 on 350k. I'll be saving $267k and 11 years. Your savings will be less but I think it still would make sense.

[etbass77]

Merch - thanks for your reply. The only difference I see is that you were only 4 yrs into your mtg whereas I am 12 years into mine. I would only save $50K and 3 yrs if I refi vs your $267K & 11 yrs. Couldn't I achieve the same thing by excellerating the principal payments on my current mtg and avoid the refi closing costs altogether. Now granted, I would be making a larger monthly payment than had I refinanced, so TVM should also be factored in, but considering the current financial markets, I'm not sure it amounts to much. I just want to make sure I am looking at this correctly.

[MonkeyMama]

This is an "it depends" answer.

If you are willing, able and committed to add $500/month to the payment for the rest of the loan, I wouldn't bother. Interestingly, if you refi and add $500/month to the payment, you only shave one year off the loan over just prepaying $500/month extra. It will cost you $7k to refi though (or more about a year of extra payments). Payoff would be around 2020.

Basically, either way you come out totally the same in the end. Same payments; same payoff date (more or less).

Now the real question is, what are the odds you can commit to that kind of payment? How secure is your job? etc., etc.

If you had to resort to minimum payments for any reason, the 15-year-loan wins. It shaves 3 years off the loan, keeping the same payment. IT does not involve sending in any extra money. The refi costs are a drop in the bucket comparing to saving 3 years of mortgage payments.

I'd probably lean towards the refi for that reason (being a "cover all bases" and "be prepared for anything" kind of gal). But I wouldn't fault you for not wanting to go through the hassle. Since you could literally pay off the loan in a decade without the refi, I definitely see the benefits of just paying extra.

[Runaway Finances]

You might want to go to planaheadinc.com and click on the "Financial Calculators" button on left, then click on the "Mortgage Payoff Calculator". In this one, you can put your loan info and then add the extra amount you want to pay to see how fast you will pay it off and how much you will save. Then open another browser window and go to "Financial Calculators" and this time click on "Mortgage Refinance Breakeven". Between those two calculators you can figure out which way is best for you.

I put your data in and it would take 44 months to break even when comparing against your current mortgage and no extra principal payments compared to refinancing. You need to do this exercise yourself, but it looks to me like you can pay extra principal and come out as good if not better than refinancing due to the closing costs.

[Shane Watson]

I think you need professional help on the matter. I talked to one and they reduced my interest rate. And for that reason I think sometimes the time value favors the refinance big time. I got both information and refinance from a site called editmyloan. They have specialist for this sort of thing.

[tmvijai]

Tax benefit

As monkeymama said, either way holds good. But you forgot to factor in tax deductions which changes the equation. In the first option, you are paying more interest and you will get more tax deduction to reduce your taxable income whereas in the later case your interests amount goes down a lot compared to the previous one. I am not sure about your income. Whether you will advantages to have the tax deductible to reduce your income depends on your pay check.

On the other hand, your $500 extra payment for 15 more years can add compound interest with 4% - 6% return can surely beat your closing cost to come out better. I know it only pays max 2% but things change and we are sure going to see 5-6% cd rates sooner or later. THink about it. One more thing to add as MM said, it depends on your job to tap in extra payment as well makes the diference.

THink about it and you can surely make a decision. Take a notepad and put to columns and start adding the pros and cons. It will help a lot instead of contemplating on your mind.

[tripods68]

My original mortgage was for $228,500 - 30 yr - 6.75% in 1997. I am 12 years into the mortgage and have a remaining principal of $190,000. My monthly payment-P&I only is $1,475. Am I better off refinancing - $190,000 plus $7,000 closing costs @ 4.5% for 15 yrs (P&I would be about the same as the original mortgage) OR just making additional monthly principal payments of say $500 to escalate the payout. Both scenarios would save interest, but which one is the most efficient?

I did interest calculation bankrate.com. I'm on my break.


12 years of total interest paid so far around $166K (228K @ 6.67%)

OPTION 1: KEEP THE SAME MORTGAGE BUT ADD $500 EXTRA A MONTH ($190K Loan balance)
TOTAL INTEREST COST $218K (166K + 52,940).
Expected pay off July 2020
11 year payment interest cost $52,940.


OPTION 2: REFI @ 4.50 for 15 years ($190K loan balance)
TOTAL INTEREST COST $277K (116K + 111,124).
Expected pay off July 2024.
15 year interest would have cost you $111,124.


OPTION 3: REFI @ 4.5% for 15 years with extra $500 monthly pmt (190K balance + $7K closing cost)
TOTAL INTEREST $212K (166K + 46,794)
EXPECTED PAY OFF balance Aug 2019.
10 year interest would cost you $46,794

[tripods68]

tripods68 ==== it's not too late to congratulate you for paying your car off === very good

Thanks RedThunderBird