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Ryan’s mortgage blog:

There are many calculations to determine whether or not it is a good time to refinance. Predicting what the market is going to do is one way to go about it. It is a gamble, but like all gambles, it can pay off. For the non-gamblers out there, crunching the current rates is the best way to go. See if refinancing with current rates will save you money. A ton of other factors come into play such as how long you plan on staying in your house, do you need cash-out, etc… If the comparisons do not come out in your favor, at least you will get an idea of what current rates need to be in order for you to think about refinancing.

For an example I compiled one of several different ways to compare your current mortgage to a possible refinance. In the scenario, I will be looking at how much you would save on your monthly payment, as well as how much interest you will save. This is based on having your current mortgage for 2 years, and you’ve been paying the principle and interest, so that 2 years of interest is factored in. The rates I used are pretty close to what today’s rates actually are for this jumbo loan with good credit.

$800,000 Value of home

$500,000 Loan amount left (JUMBO loan – non-conforming)

30 Year Term – Principle and Interest

Current rate = 8%, Monthly Principle & Interest (P/I) Payment = $3,668, Total Interest left for life of loan = $741,479

No Cash Refi(no closing costs) rate= 7.5%, Monthly P/I = $3,496 ($172 saved monthly), Total Interest = $758,589 ($17,110 lost in interest over 30 years)

Normal Refi (typical closing costs) rate = 6.625% Monthly P/I = $3,233($435 saved monthly), Total Interest = $652,563 ($88,916 saved over 30 years)

As you can see, your monthly payments lowered, but you will end paying more interest for the No Cash Refi because you basically lost the two years you of interest you just spent. The Normal refi saved money on both ends. Keep in mind, your new mortgage would be done in 30 years from the date of the refinance, not the date of your first mortgage 2 years ago.

5 year ARM – Principle & Interest

Current rate = 7%, Monthly Principle & Interest (P/I) Payment = $3,326, Total Interest over 5 years = $170,247

No Cash Refi(no closing costs) rate= 6.5%, Monthly P/I = $3,160 (166 saved monthly), Total Interest over 5 years = $157,673 ($12,574 saved over 5 years)

Normal Refi (typical closing costs) rate = 5.875% Monthly P/I = $2988($338), Total Interest over 5 years = $142,007 ($28,240 saved over 5 years)

I only showed the interest for 5 years since most people refinance out of the ARMs within that time. Measuring the savings on total interest is tough on this one because you have already paid 2 years of interest, so the dilemma is do you compare them for final 3 years or the full five? So I just showed what the original 5 years interest was. Since this would adjust after 5 years, I didn’t bother doing it for the full 30.

If you want to know other ways to compare figures, just let me know, I would be happy to show you or do calculations for you. I can be reached at rbaker@PeregrineLending.com or 805-540-0866. Hope everyone has a great holiday!!!

Written by Keith Byrd - Go to Keith's Website/Profile