Refinance

[Starz26]

Just finishing refi from 5.5 with 23 years left on it to 4.25 for 15 years.

They way I figure out if it is a benefit is as follows:

1. How much additional principal do you have to put on the current loan to pay of within the term of the new loan? this = x

2. Difference in remaining months of current loan to new loan = Y

3. Difference in payment from new loan vs current loan = D

4. Closing costs = Z

Formula is: ((Y*X) - Z) - (D*new term in months)

So if you original loan has 23 yrs left and an additional $300/mo would pay it off in 15 yrs. New loan is 15 years with $60 less per month in payments and $8,000 in closing costs you would save:

((84*$300)-$8,000) - (-60*180) = $28,000 savings

Most of the time people will say that you should multiply the years saved by the monthly payment to see how much you would save but this is incorrect as you are really only saving the additional amount you would use to pay down the original loan faster. BUT, in this situation you pay off the loan faster without having to pay additional per month so it is a winning situation as long as the final number is more than $0.00

At least that is how I am thinking, anyone see issues with this process?

[yourchoice]

Originally Posted by Starz26

Just finishing refi from 5.5 with 23 years left on it to 4.25 for 15 years.

They way I figure out if it is a benefit is as follows:

1. How much additional principal do you have to put on the current loan to pay of within the term of the new loan? this = x

2. Difference in remaining months of current loan to new loan = Y

3. Difference in payment from new loan vs current loan = D

4. Closing costs = Z

Formula is: ((Y*X) - Z) - (D*new term in months)

So if you original loan has 23 yrs left and an additional $300/mo would pay it off in 15 yrs. New loan is 15 years with $60 less per month in payments and $8,000 in closing costs you would save:

((84*$300)-$8,000) - (-60*180) = $28,000 savings

Most of the time people will say that you should multiply the years saved by the monthly payment to see how much you would save but this is incorrect as you are really only saving the additional amount you would use to pay down the original loan faster. BUT, in this situation you pay off the loan faster without having to pay additional per month so it is a winning situation as long as the final number is more than $0.00

At least that is how I am thinking, anyone see issues with this process?

I'm trying to wrap my head around this equation. I am contemplating it differently. My new 15 yr mortgage (quoted today) would raise my payments about $60, but it would shorten my term by 44 months. The additional cost (for the 15 years) associated with the new loan would be 180*60 = $10,800 plus my closing costs. Conversly my last 44 payments would result in (in P&I only obviously) a cost of over $28,000. Now, the value of the dollar and other related factors are difficult to quantify, but I still think refi-ing would be the best bet. Using the equation you formulated actually suggests me not doing it. I'm not sure what I'm missing. FWIW (if you want to calculate it) I would have to raise my payments of my current loan $150/month to pay it off in the same amount of time.

FWIW, I do not see myself moving for a long, long time.

[Starz26]

Originally Posted by yourchoice

I'm trying to wrap my head around this equation. I am contemplating it differently. My new 15 yr mortgage (quoted today) would raise my payments about $60, but it would shorten my term by 44 months. The additional cost (for the 15 years) associated with the new loan would be 180*60 = $10,800 plus my closing costs. Conversly my last 44 payments would result in (in P&I only obviously) a cost of over $28,000. Now, the value of the dollar and other related factors are difficult to quantify, but I still think refi-ing would be the best bet. Using the equation you formulated actually suggests me not doing it. I'm not sure what I'm missing. FWIW (if you want to calculate it) I would have to raise my payments of my current loan $150/month to pay it off in the same amount of time.

FWIW, I do not see myself moving for a long, long time.

Ahh, Thanks for pointing this out, I made a misstatement, the additional payment on the current loan would have to be for 15 yr or 180 months not the difference between the loans......

So new formula is:

1. How much additional principal do you have to put on the current loan to pay of within the term of the new loan? this = x

2. NEW loan term in months = Y

3. Difference in payment from new loan vs current loan = D

4. Closing costs = Z

Formula is: ((Y*X) - Z) - (D*Y) or Y(X-D)-Z


You are saving anything you would have to pay additional on the current loan to make the same terms so you total how much you would pay over to make the new term and you would pay this for the entire term.


Your loan: ((180*150)-closing costs)-(60*180) = $16,200 savings

So as long as your closing costs are not over 16,200 then it makes sense.

Then you can take into account the future value of money, etc....

Also, making $150.00 a month in extra payments is something completely differet than making $60 extra so......

Sorry for the confusion above.