PDA

View Full Version : Refinancing the mortgage?


Octoberbride03
01-27-2012, 12:24 PM
Please explain this to me like I am 5 years old.

I'm not sure how redoing it will save us money in the long run. I can definitely see how it would save us money in the short run, but like I said, please explain like i am 5. No sarcasm here, definitely like I am 5yo. :thumbsup2

punkin
01-27-2012, 12:45 PM
What is your interest rate now?
What rate will you refinance into?
What are the closing costs?
How many years are left on your mortgage?
Take this info and put it into a good mortgage calculator. Compare monthly payment amounts and total amount paid over the life of the loan.
Make an informed decision.

You are not 5 years old.

ETA: Try this one http://www.mortgagecalculator.org/

Debbie7452
01-27-2012, 12:53 PM
Yes, the PP is right that details are necessary to really see if refinancing is right for you. However, to use my refi as an example. We were 3 years into a 30 year mortgage with 260,000 remaining at 5.8% We refinanced to a 20 year mortgage(so we cut off 7 years of payments) at a lower interest rate and actually LOWERED our monthly payments. So we pay for 7 years less and pay less each month. Over the life of the loan we will save $175,000 in interest payments. We added the closing costs onto the loan amount so there was little out of pocket expense. It is a huge hassle these days, but if you can qualify it is a win,win,win situation!

sam_gordon
01-27-2012, 12:55 PM
I'm just going to throw numbers out here to hopefully give you an idea.

Regardless of the cost of the house, let's say your original loan was broken down to $1000/month for 30 years. (1000*12*30). So at the end of your loan, you would pay $360,000.

Now, let's say you're five years in. So you've paid $60,000. You know you have to pay another $300,000.

Let's say you refinance. Now your monthly rate is $900, BUT it takes you back up to 30 years. At the end of that 30 years, you'll have paid $324,000 PLUS whatever fees to refinance. So in the long run, that's not worth it.

However, if the new rate saves you $200 a month (meaning you now pay $800), you will have paid $288,000 plus fees. So you just saved ~$10,000.

The savings will multiply if you continue to pay the monthly savings toward principle. (ie: you still pay $1,000 each month even if your requirement is $800).

That's a very simple answer. You need to put your numbers into a mortgage calculator to figure out if it's "worth it".

chalee94
01-27-2012, 12:57 PM
I'm not sure how redoing it will save us money in the long run. I can definitely see how it would save us money in the short run...

do you have this backwards? if you are paying 8% interest on a 100,000 home loan, you would owe $8000 per year (or a bit less as you paid down the loan.) if you refinanced to 4% interest on a $100,000 loan, you'd owe $4,000 per year.

the issue is that refinancing usually involves setting up a new loan, and there are fees involved with that...so in the short term, you might be paying fees of $6,000 to refinance your $100,000 debt.

the main point is figuring how long you'd need to stay in the home saving $4000 per year in interest to pay for the refi fees of $6000. in this simple example, roughly a year and a half.

if you were planning on moving in less than a year, don't bother with the refi...otherwise, definitely get the lower rate.

Octoberbride03
01-27-2012, 02:03 PM
What is your interest rate now?
What rate will you refinance into?
What are the closing costs?
How many years are left on your mortgage?
Take this info and put it into a good mortgage calculator. Compare monthly payment amounts and total amount paid over the life of the loan.
Make an informed decision.

You are not 5 years old.

ETA: Try this one http://www.mortgagecalculator.org/

Some of look at those numbers and JUST SEE NUMBERS! I asked to have it explained so i can understand it. i don't have a numbers/math kind of head other people do. I'm a written word type of person. If you can't do that then fine. And being informed means understanding what I'm getting into. I haven't started the process yet, haven't signed anything, I am merely starting the research and silly me thought you could be nice about it.

My mistake.

punkin
01-27-2012, 02:11 PM
Some of look at those numbers and JUST SEE NUMBERS! I asked to have it explained so i can understand it. i don't have a numbers/math kind of head other people do. I'm a written word type of person. If you can't do that then fine. And being informed means understanding what I'm getting into. I haven't started the process yet, haven't signed anything, I am merely starting the research and silly me thought you could be nice about it.

My mistake.

:confused3 and here I thought I was being helpful. No one can help you without the relevant information, which you have not provided. It is really a numbers game and you (or we on this board) have to compare the numbers. You have not provided us with any numbers so we cannot help you. In 5 year old terms: if the numbers come out lower on your current mortgage, then keep it. If they come out higher, then refinance.

GrnMtnMan
01-27-2012, 02:24 PM
In the long and short run, you can have smaller monthly mortgage payment.

The only reason *not* to refinance is if the fees you have to pay for getting the new mortgage are bigger than the savings you get with a smaller monthly payment. That savings depends on how long you're going to be in the house, and how big the fees are.

mamajo
01-27-2012, 02:24 PM
October you need to chill-ax. Pumpkin WAS trying to help and broke it down in the simplest terms. She wasn't being snarky! Honest!:confused3 Why so upset??

Huff
01-27-2012, 02:41 PM
Here is an example of how refinancing can lower your monthly payment but end up costing more in the long run.

If you owe 10 years on your current mortgage and refinance to a new 30yr loan even at a lower rate, you'll have a much lower payment but end up paying far more over the course of the loan.

However, under almost all loans you can pay more each month that the required payment and pay a 30yr loan off in 10 if you want. You'll still save if the interest rate dropped enough to cover the costs of getting the loan.

Nobody can tell you if refinancing will be right for you because we do not know how much you currently owe, how many years left and what interest rate you're paying now. While these may not make sense to you, they are the only way to tell if refinancing will save you money. Everyones situation is different.

Bob NC
01-27-2012, 04:00 PM
Some of look at those numbers and JUST SEE NUMBERS! I asked to have it explained so i can understand it. i don't have a numbers/math kind of head other people do. I'm a written word type of person. If you can't do that then fine. And being informed means understanding what I'm getting into. I haven't started the process yet, haven't signed anything, I am merely starting the research and silly me thought you could be nice about it.

My mistake.

I suggest you seek advice elsewhere.

brymolmom
01-27-2012, 04:14 PM
Please explain this to me like I am 5 years old.

I'm not sure how redoing it will save us money in the long run. I can definitely see how it would save us money in the short run, but like I said, please explain like i am 5. No sarcasm here, definitely like I am 5yo. :thumbsup2

I will try to help a bit but I agree with pp that we can't explain how it will save you money because, ultimately, it might not. Depending on all the figures (how much you've paid, how much you still owe, current rate of interest, new rate of interest) - it might not save you money overall.

I will tell you that even though it might look like it will save you money in the short run, don't forget about closing costs/mortgage tax. Basically for refinancing you will have 'fees' that need to be paid now to get it all done. So even though your monthy out of pocket might go down, you will have to have some cash to outlay to get it done - overall not saving you money right now but costing money right now.

We refinanced a couple months ago. We were able to go from a 30 year to a 10 year mortgage - that helps to save a lot of money if you are able to reduce the # of years. But we had to pay approx. $1800 upfront for all the associated fees for the closing/refinancing.

Generally speaking some rules of thumb are that if you are able to go down at least 2 percentage points it 'might' make sense to do it. For example, if you are paying 6.75% interest right now and can go down to at least 4.75%. Also, general rule of thumb if you don't plan to be in this current home for at least another 5 years then it is often considered a bad idea to refinance. Of course, not in every case - but generally speaking.

If I was explaining it to my 8 year old I would say 'When you borrow money, you have to pay back extra money since they let you borrow it. This is the interest. By having a lower interest amount you're paying less to the company who let you borrow it. When you refinance, you want to have a lower interest rate so that you can pay the company less and keep more in your own pocket.'

If you go to a local credit union with a copy of your current mortgage bill, I bet someone would be able to walk you through it step by step.

sam_gordon
01-27-2012, 04:59 PM
If I was explaining it to my 8 year old I would say 'When you borrow money, you have to pay back extra money since they let you borrow it. This is the interest. By having a lower interest amount you're paying less to the company who let you borrow it. When you refinance, you want to have a lower interest rate so that you can pay the company less and keep more in your own pocket.'
For those of you who liked School House Rock... http://www.youtube.com/watch?v=mV6YaTbNvvE

malibuconlee
01-27-2012, 05:42 PM
What is your interest rate now?
What rate will you refinance into?
What are the closing costs?
How many years are left on your mortgage?
Take this info and put it into a good mortgage calculator. Compare monthly payment amounts and total amount paid over the life of the loan.
Make an informed decision.

You are not 5 years old.

ETA: Try this one http://www.mortgagecalculator.org/

One other thing not in this equation is...how long do you plan to stay in this home? If there is a possibility you will want to sell and move for whatever reason (have another baby want a bigger house, job transfer, etc) you need to decide if it makes sense to refinance when you consider the costs involved in refinancing.

DawnM
01-27-2012, 06:31 PM
I really can't comment too exactly not knowing what you owe and what percentage rate you have vs. what you can get if you refinance, HOWEVER, if you have a $100K mortgage at 5% you will pay a total of $192,000 at the end of 30 years, or almost double.

However, if you have a 100K mortgage at 4% you will pay a total of $172,000, saving you $20,000 over the life of the loan.

Obviously this is simplified and your numbers will be different but you can at least see the savings.

Dawn

leebee
01-27-2012, 08:15 PM
October you need to chill-ax. Pumpkin WAS trying to help and broke it down in the simplest terms. She wasn't being snarky! Honest!:confused3 Why so upset??


"Make an informed decision. You are not 5 years old."

This sounded pretty snarky to me, and I felt bad for the OP, who was only trying to be honest. While I am good with numbers, I am endlessly challenged by technology, be it the laptop, TV with a million stations and a remote control that could run the majority of the free world, or the DVD player. I refer to it as "techno-stupid," and no matter how hard I try to understand how these things work or how to operate them, it's just beyond me. I "get" how the OP feels.

Eeyore98
01-28-2012, 06:14 PM
The simplest way to say it is that if you can get enough of an interest rate drop to offset
a) the fees associated with refinancing, and
b) the increased amount of time you will be paying interest (since a refi will reset you back to 15 or 30 or whatever),
then it will save you money in the long run.

Our refi actually cost us money in the short run, because we chose to pay our closing costs up front rather than have them rolled into the loan. But we have already made that cost back and then some with the lowered monthly payments, in not quite 2 years.

2Monkeys
01-28-2012, 07:18 PM
You also need to consider how much (or how little) equity you have in your home. If you have less than 20% equity, you may not get the best rate and you will likely have to pay PMI.

We ultimately decided not to refi, because due to the declining housing market, we have lost some home value over the past few years. That made us not have as much equity as we should, so put the PMI into play. We would have had to stay in our house for more years than we are sure we will to make it worthwhile.

As others have mentioned, there are great mortgage calculators out there. You can search 'is refinancing worth it' and will get all kinds of tools that could help you make the decision.

figmentfan0724
01-28-2012, 07:26 PM
as someone who does refinances for a living....definatly look at the costs involved...the company I work for does no cost refinances...I personally will only ever present refinance as an option if it goin to save the customer money by either, lowering their payment and or paying off their house earlier...