How does a refinance work - are there hidden opportunities?

[NC_Mtg_Loaner]

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@Sk323i wrote:

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The original loan was 204K - i've paid it down 9K in the balance I guess in 3 years - which sucks. I don't really know where the rest of my money went - hence the new mortgage that I need. 

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What you need to understand is how your loan amortizes over time.   

During the first 10 years of a 30 year loan you will pay 20% principle and 80% interest.   This is why you want to pay extra principle and this is when you want to do it in order to make it have a greater positive impact in your favor. 

Take a look at the amortization schedule of your current loan and  you'll see that you paid $3000 in principle and $10,000 interest to the bank annually for those first 3 years.   Add your taxes, insurance, monthly maintenance utilities and PMI and it gets up there.   You'll certainly appreciate a lower rate.

[Sk323i]

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@NC_Mtg_Loaner wrote:

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@Sk323i wrote:

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The original loan was 204K - i've paid it down 9K in the balance I guess in 3 years - which sucks. I don't really know where the rest of my money went - hence the new mortgage that I need. 

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What you need to understand is how your loan amortizes over time.   

During the first 10 years of a 30 year loan you will pay 20% principle and 80% interest.   This is why you want to pay extra principle and this is when you want to do it in order to make it have a greater positive impact in your favor. 

Take a look at the amortization schedule of your current loan and  you'll see that you paid $3000 in principle and $10,000 interest to the bank annually for those first 3 years.   Add your taxes, insurance, monthly maintenance utilities and PMI and it gets up there.   You'll certainly appreciate a lower rate.

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I guess I do not understand that. 

Where does the money that I paid in interest go - directly towards the bank (bank #1) ?

Sunken costs basically?

If I re-fi my loan - and take it to a new bank (bank #2) - and I have a whole new interest rate with them... I basically paid bank #1 a whole bunch of interest for free?

Bank #2 then becomes the new loan holder - and I pay them interest as well - at a lower rate.

If I look at the amortization table -- is there a year somewhere where I no longer pay interest?

Or the % of interest goes down steadily year over year?

I did notice the my mortgage payment is $30 less this year than last year. I dont know why...

[MauiMan85297]

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@Sk323i wrote:

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@MauiMan85297 wrote:

If your main goal is to remove PMI then do the rate/term re-fi and remove PMI.  You don't have enough equity to do anything at this point based on the figures you gave above.  $204k loan amount would have to include any closing costs (including points if you bought the rate down) and your new escrow account if you plan on including it into your payment (you don't have to if you don't want to).

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When you say "the loan amount would have to include closing costs and your new escrow account" ?

There is a cost associated with opening an escrow account and using it for the closing of the mortgage ?

The loan would be $195K and the house could appriase for $270K.

The original loan was 204K - i've paid it down 9K in the balance I guess in 3 years - which sucks. I don't really know where the rest of my money went - hence the new mortgage that I need. 

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It's not a cost for escrows but it's a $ amount that has to be collected to set up a new escrow account so that your taxes/insurance can be paid when due.  You would of course get an escrow refund from your existing escrow account.

Keep in mind that your statement balance is NOT your payoff, your lender should calculate your balance and add about 2 months worth of interest (as you pay your interest in the rear).

[Anonymous]

Interest is paid in arrears every 30 days ona mortgage. For instance your feb. 1 mortgage payment you would only be paying interest for Jan. 1- Jan.30. There is no early payment of principal penalty with mortgages, meaning if you borrow 200k and make 1 monthly payment and then pay the rest of the entire principal, you would have only paid 1 month of interest.