finance gurus: calculating true cost of refinancing mortgage loan?

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LordSnailz

Diamond Member
Nov 2, 1999
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Currently I have a 30yr fixed jumbo loan at 5.625%, but there are many folks quoting numbers as low as 5.375% for a 30yr fixed. Does it make sense to refinance?

So I think it'll depend on how long I'll stay at the house, therefore I can calc. approx. how long it'll take to recoup the cost of the loan right?

org. mortgage payment - $3500
new morgtage payment - $3000
monthy difference - $500
tax bracket - 0.28
annual savings/yr - $500 * 12 * 0.28 = $1680
est. cost to refi - $5000

time to recoup - $5000/$1680 ~ 3yrs?

That says that if I stay in the house for greater than 3yrs, then it makes sense to refi? And the longer I stay the more I 'save' for refinancing? This also assumes I can get a good mortgage rate, with a low LTV and good FICO score.

On a side note, how to you ensure that no additional cost is hidden and rolled up into the loan? Make sure that the loan amt. is the amt. owed on the original loan?
 
sactoking

sactoking

Diamond Member
Sep 24, 2007
7,633
2,894
136
Generally, you have to take into account the new amortization schedule.

From a tax savings v cost standpoint, a refi may make sense if you stay more than 3 years. However, when you refi, your amortization gets reset to 30 years, so for those 3 years the interest portion of the payment will be extremely high. Depending on where you are on your current loan, you could go from having your payment go from primarily principal to 90+% interest. You could lose a lot of potential equity if you turn around and sell in 3 years.

As a rule of thumb, the older your loan is the less valuable a refi will be if it is for the same term length as the original loan, notwithstanding extraordinary circumstances.
 
O

OCGuy

Lifer
Jul 12, 2000
27,224
37
91
You will have fees. If your new loan amount is the exact same as the current loan balance, expect to bring 2-3% of the loan amount into escrow (or the equivalent in your state). Anyone offering you a "no-fee" homeloan is raising your rate higher than it has to be, and getting a spiff (aka rebate) on the back end to help pay those costs.
 
Epic Fail

Epic Fail

Diamond Member
May 10, 2005
6,252
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Just from glancing the numbers, .25 percentage point drop shouldn't make the monthly payment $500 less and the annual saving should be (monthly saving) * 12 * (1-tax rate).
 
xgsound

xgsound

Golden Member
Jan 22, 2002
1,374
8
81
If this applies with your mortgage company you should check into it.

Many mortgage holders offer a negotiated one time interest drop to customers in good standing when interest rates fall to keep their business. It won't hurt to aggressively inquire especially since there usually is little or no fee for a one time drop. The drop may not be the to absolute lowest rate you can get, but the low/ no cost and paperwork factor makes it a reasonable option for all concerned.


Jim


 
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