TWO VERSIONS OF A MORTGAGE REFINANCE

Had a thought regarding a recent post. Something I always like to point out to borrowers who inquire about refinancing.

Let’s look at my perspective. If we assume a loan amount of $300,000 and a current rate at 6.00%. The principal and interest payment would be $1,799. Principal and interest.  Principal, assuming value stays the same or increases, will become equity. An amount that you own. Interest is a cost. You pay it, and lose it.  Anyway, if you were to refi with a 5.00% rate, your new principal and interest payment would be $1,610.  Lowering your monthly payment $189 per month. $2,268 per year. $11,340 for 5 years. Not bad.

And…to me, more importantly, you lower your cost. At 6.00% your yearly interest that you pay is $18,000. At 5.00%, it’s $15,000. In this scenario, you’d be saving $3,000 per year ($250 per month)! Pure cost. Over five years, you’d be saving $15,000.

Remember, there’s two payments to keep in mind: monthly payment as well as cost (interest).

15 January 2010 | Interest Rate, Refinancing | Comments

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