Financing in 19124>Question Details

Mukesh Yadav, Other/Just Looking in 19341

Is it really good deal with refinancing 60000 loan from 5.5% with 30 yrs term to 4.25% with 15 yrs term?

Asked by Mukesh Yadav, 19341 Mon Jan 25, 2010

Refinancing

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You can crunch a bunch of numbers but in a nutshell if you plan on staying in the home for a little while this is a good deal for you. A loan officer can also waive fees for you and give you a slightly higher rate. It all depends on how long you plan to stay in the home, your credit score, equity, affordability ratios, etc as to the best way to structure your loan. I'd do the 15 year at 4.25% and try to get your loan officer to minimize the fees as much as possible.......unless you plan on moving soon go ahead and do it. If you need assistance I'd be happy to speak with you. Chad 610 622 2212 cbahnsen@mortgagenetwork.com
0 votes Thank Flag Link Thu Jan 28, 2010
Very good replies here from Dan & John!

Just some numbers on the scenario you laid out assuming you have a full 30yrs left on a 60k loan @ 5.5% VS. a 4.25% 15yr loan.

You will pay $62,642 in interest on the 30yr loan VS. $21,246 of interest on the 15yr loan. A savings of $41,396......the payment on the 15yr loan is $110 more per month.

All true statements about importance of the costs of your refinance as well as how long you plan to hold this mortgage.
0 votes Thank Flag Link Mon Jan 25, 2010
Take your existing loan balance and amortize it over 15 years (which you can do without refinancing if you pay extra principal each month). Write down what your payment would be. Then take your new monthly payment if you refinance for 15 years. Compare the two. That is your monthly savings. Then divide your upfront refinance costs by your monthly savings to get your breakeven point in months. If you plan to stay in the home longer than that its likely a good deal. If you don't or are not sure its not.

I am simplifying a bit by ignoring tax benefits but if the time you plan to stay in the house well exceeds your breakeven point it makes sense to refinance.
0 votes Thank Flag Link Mon Jan 25, 2010
It really depends on a couple of things.
1) How much are your closing costs?
2) How many years do you already have invested in your current mortgage?

If you've had your current loan for a while, it may make more sense for you to pay extra each month towards the principle of your loan.

Just for the sake of argument: On a $60,000 loan at 5.5%, the monthly principle an interest payment should be $340.67. If you add an extra $150.00 per month, the loan would be paid of in 15 years.
0 votes Thank Flag Link Mon Jan 25, 2010
My own rule of thumb has always been at least 1% or more to be worthwhile. And I agree with Patrick on the 30-15 year reduction. If you can afford that comfortably then why not. Be sure, though, that you inquire about closing costs and other fees as they differ from lender to lender.
0 votes Thank Flag Link Mon Jan 25, 2010
Depends on what it does to your monthly payment. If it's an amount that you can make without strapping yourself, then its a good deal. You will save quite a bit in interest by reducing the rate and number of years to pay it back.
0 votes Thank Flag Link Mon Jan 25, 2010
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