Refinance Question

[CreditJim]

Just trying to get my head around refinancing. I got my first mortgage last year at 30 years 4.25%

Since the beginning of this year I've been making the extra payment to have the loan paid off in 14 years.

Is it worth trying to refinance into a 15 year fixed if I could get a rate of say, 3.330%?

Balance on the loan is around $182,000 with about $60,000 equity, probably more (house prices have risen in my area).

From my crude math, it seems I wouldn't stand to save a great deal by refinancing IF I continue making the extra payments, perhaps around $3500?

[Lel]

If you think you are able to permanently manage the higher monthly payments, as you are doing right now, then I'd go for the refinance.  I haven't redone the math, but assuming that $3500 savings is correct, I still consider that to be a substantial amount of money.

IMO, the only reason not to refinance is if you think that you may not be able to continue making the higher monthly payments.  If, for example, you run into additional future expenses, you could always go back to paying the regular monthly payment with your current loan.  If you refinance to the shorter-term and lower-interest loan, you won't have that option anymore.

[BrianB_The_Loan_Professor]

182k x 4.25% = 7735 in interest a year

182k x 3.33 =  6060 in interest a year a savings of around $1675 PER Year -of course this number goes up every year as the balance will go down quicker ..........

If you can afford it I would say go for it - typically if you can recoup the money fpor the refi within a few years it makes sense to refi.

Good Luck

Brian

[CreditJim]

Wouldn't it be $1675 savings the first year and the savings would gradually decrease each year as the balance decreases?

[BrianB_The_Loan_Professor]

Every year the balance goes down faster on a 15 . You only pay interest on the balance so the amount of interest paid is less every year.....

assuing you pay the 15 year payment using the 30 year term it would worst case remain pretty consistent..

It should never decrease?? 

[CreditJim]

I've calculated it a different way now, albeit quite crude, I think it gives a fairly good overall idea. At the moment with my 30 year mortgage at 4.25 I'll pay approximately $140k in interest for the loan.

I'm making the extra payments to get it paid off in 14 years, so it's roughly a 15 year loan at 4.25%, which means I would pay approx. $65k in interest over the loan. If I refinanced to a 15 year 3.33% loan I would pay a total of approx. $50k in interest, so potentially a $15k saving to be had by refinancing.

Tough choice to make really, potentially a big saving but also committing myself to the larger payment, which is not a problem at the moment, I'm paying it completely by myself without even accounting for my wife's income.

I suppose the other option is increasing the payment again to aim for having it paid off in 10 years, which would save me further interest.

[BrianB_The_Loan_Professor]

You are right - I was wrong - it happens LOL but I think I know why

you are correct - the savings goes down as you will be applying more towards principal and thus less is being paid towards interest - 

my thoughts were comparin the 15 to the 30

In that case the balance of the 15 is going down quicker and again less interest while the 30 would have to continue to pay interest on the higher balance.

If you do the same amortization of the two loans again using the full 30 year term the amount of savings is staggering