Mortgage Refinance Question?

[Drivenone]

I have had a few home purchases in the past 10 years but have never refinanced. My current home is an FHA loan that has been paid on for 5 years. Its interest rate fixed 30 year in 1998 was 7.25%. I recently looked into refinancing with the FHA streamline process, less paperwork and easier to do. I am locked in at a fixed 30 year rate of 5.75% on the new loan. My question is that if I take my current monthly payment of P&I and escrow I am at $954.00 with 25 years 300 payments left. With the new note I will be at $830.00 P&I and escrow but will have 360 or a full 30 years again to pay. Here in lies my question?? If I take the simple math caculation of 300 payments left at $954.00 and 360 of the new rate....it comes up not making much $$$ difference. My closing costs and prepaids on the new note total about 2.5%. I do any refianace calculators and it says it is a good move to go with the new rate but the simple math shows otherwise. Could some please explain what I am missing as far as compound interest or whatever it is that makes this a wise financial decision! KARMA to anyone that tells me what I am missing. Thanks in advance!

 

[chesty]

One, you only have 25 years at 954 and the new loan at 30 years for 830.

You save on the interest by paying more on principle each month. You can take the difference in the 954-830 or 124 dollars a month and apply that directly to principle and you will pay you loan off in like 22 years or something like that.

The interest you would save is tremendous. Plus, if you decide to sell with assume the mortgage it will be much easier to get a buyer.

You can always refi for say 15 years at 5.75 and save a fortune in interest, but you will have a higher monthly payment. So just do the 30 at 5.75, figure out what you need to pay on principle to pay it off in 15 and make those payments as well. That way if you get in a bind your not stuck with a 15 year mortgage payment.

Hope it helps a little.

 

[Lumberg]

2.5 points is ridiculous for a refi. I refi'd to 5.75 from 6 for abolutely no out of pocket costs!

I'm getting ready to go down into the 5.25 range with the same deal.

find a good mortgage broker.

 

[gtrcivic]

chesty pretty much hit it on the nail... By refying, more of your monthly is going towards principal each month, then interest. Another thing you can do is make one extra payment during the year. It'll knock off several years off of your loan , since it is entirely going towards the Principal......

 

[HUGHJORGEN]

you should be able to refi with no points, then pay the amopunt you pay now, and you will come out ahead. Go one step further, and devide you monthly payment into 2 bi-weekly payments instead of one monthly and you will pay off the loan about 8 years early!

 

[Drivenone]

Thanks for all the info so far. I appreciate it. Chesty & Lumberg I need to spread my Karma around before hitting you? I have no idea why but it is saying that. Thanks again!

 

[FreeballinDC]

2.5 points is ridiculous for a refi. I refi'd to 5.75 from 6 for abolutely no out of pocket costs!

I'm getting ready to go down into the 5.25 range with the same deal.

find a good mortgage broker.

When you find one, let me know. I am about to be in the same boat!

 

[Drivenone]

Actually I should have said the 2.5% is not just points it is all the fees and prepaid items so I am more in the neighborhood of 1.4 points. The rest is the escrow initial reserves.

 

[HANSEL]

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