Retirement and a New Mortgage Advice NEEDED

[Anonymous]

I need  advice!  Currently in new england and fortunate to be thinking about retirement.  My Fico score is 667. I currently have a morgage with 32K left on the balance. I need advice on 2 things- First, Im trying to improve my credit and was wondering if I should switch to get a 5/1 loan for the rest of the 32K mortgage I have left.  I figured It would be a better rate and cheaper payment than I have now. I currently have a 8% rate on that 32K (That was the rate I got 11 yrs ago but never re-fied). 

Second thing- I want to relocate to the warmer south(Fla. or SC) , should I wait 2 more yrs before looking for my retirement home and pay down the 32K on my current mortgage or should I start looking now with the prices so low in the south??  My income is fantastic (110k), Credit cards are less that $500 total and 1 Installment loan with $12,800 left.  Please advise, Thank you!!!!

[ShanetheMortgageMan]

Refinancing won't help out your scores, but reducing that interest rate may save you some money if you plan on paying the loan off over the remaining loan term.  If you plan on selling in 2 years then there may not be enough time for you to recoup the closing costs in the form of lower interest savings.

[Anonymous]

One question.  if you have had the loan for that long, is not the majority of the balance left principle?  I thought as you got towards the end of the loan that most of the interest was paid.  IF that is the case it would make no sense to refi I would think.   Of course, if you are planning on moving soon it definitely makes no sense as SHane said.  

[Anonymous]

Thanks to both of you for your input. It makes sense.

[ShanetheMortgageMan]

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@Anonymous wrote:

One question.  if you have had the loan for that long, is not the majority of the balance left principle?  I thought as you got towards the end of the loan that most of the interest was paid.  IF that is the case it would make no sense to refi I would think.

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The amount of principal/interest that is paid each month is based on an amortization chart, a new refinance with the same amount of terms left, but at an interest rate at 1/2 of what they are at now would be saving more interest.

For example $32k over 5 years at 8% as a $648.84/mo payment.  At 4.25% it is $592.95/mo.  $55.89/mo savings over 60 months is $3,353.40.   So if you have 60 months or less, the savings won't be that great when you factor in the upfront closing costs.  But if it was 10 years left, that is a $388.25 payment vs. a refinanced payment of $327.80, or $60.45/mo savings, and over 120 payments that is $7,254 in saved interest.

[Anonymous]

So a mortgage loan is not like a car loan in the fact that by the time you are 2/3rd's through the loan you are paying alot less interest and more principle.  Correct?  Funny enough I always assumed that this was how it was and never asked.

[ShanetheMortgageMan]

It is like that, your assumption is correct, but if you have 10 years left on a mortgage and you get a new 10 year mortgage... you are at the same exact point in the repayment period both ways.

To confirm run an amortization schedule for a $100k 30-year loan at 8%, after 20 years, payment 241 is $330.56 in principal & $403.20 in interest.  Let's say instead you refinanced after payment 240, you refinanced the balance which is $60,150, into a 10-year loan at 4%.  It's first payment (or the 241st payment total) would be $408.89 in principal & $200.50 in interest.

You only reset the interest clock again when you are refinancing for a longer term than you currently have AND pay the payment on the longer term.  If you refinance for a longer term at a lower rate, but you make the payment that represents the remaining term you had originally, then your interest clock remains on schedule.

[Anonymous]

I see said the blind man.