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Home > Personal Finance > Save Money Refinancing a Home Mortgage, Part II

Save Money Refinancing a Home Mortgage, Part II

January 16th, 2010 Leave a comment Go to comments

This is the continuation of the first post. For the calculations in this post, the following loan will be used. If you want to use your own loan information, collect the following information: 

  • Annual Interest Rate.
  • Monthly Payment.
  • Number of Months Remaining: Subtract months you have paid from total months (e.g., for a 30 year loan after 5 years, this works out to 30*12 – 5* 12 = 360-60 = 300).
  • Current Loan Balance – find this on your current statement. 

Sample Loan: 30 year mortgage that has 25 years left to go:

  • Loan Amount: $200,000 
  • Term/Annual Interest Rate: 30 years/6%.
  • Monthly Payment: $1200 (rounded up).
  • Number of Months Remaining: 300 (25 years).
  • Current Loan Balance: $186,000.

The following Yahoo! calculators will be used:

Example #1: Refinance to 30 Year, 5%. 

Input the existing mortgage information into the RC. (Use the values above and input them into the calculator inputs of the same name). For the new mortgage, specify an interest rate of 5%, 360 months. Use the default closing cost estimate of $2500, and origination costs of ZERO. 

The calculator not only gives you the 30 year re-fi, it also provides the new payment for a mortgage modification loan (this is referred to as an ‘Enhanced Refinance’). The 30 year loan saves you almost no money in interest costs, while the mortgage modification saves a lot more: 

  • 30 year loan saves: $64 dollars (new payment: $998 – the lowest payment).
  • Mortgage modification saves: $33,316 (new payment: $1087).

Example #2: Refinance to 20 Year, 4.875%. 

Input the existing mortgage information into the RC. For the new mortgage, specify an interest rate of 4.875%, 240 months. Use the default closing cost estimate of $2500, and origination costs of ZERO. 

The Enhanced Refinance result is not relevant in this calculation.

  • 15 year loan saves: $67,990 (new payment:  1,215 – slightly higher) .

Example #3: Refinance to 15 Year, 4.75%. 

Input the existing mortgage information into the RC. For the new mortgage, specify an interest rate of 4.875%, 240 months. Use the default closing cost estimate of $2500, and origination costs of ZERO. 

The Enhanced Refinance result is not relevant in this calculation.

  • 15 year loan saves: $99,102 (new payment:  1,447 – much higher) .

Summary 

  • The best value is the 20 year re-finance. It saves money and the payment is only slightly higher.
  • The 30 year mortgage modification saves both in total cost and the monthly payment.
  • The most savings is found in the 15 year refinance, at a much higher payment.
  • The 30 year refinance lowers the payment the most, but there is no savings here (actually a loss) if you also add in closing costs. 
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