Profile picture for mangomilo1

What's better: refi or expedited payments on existing note?

I have 8 yrs. left on a 15-yr. mortgage @ 4.875%, and can make at least one extra principal payment per year. In terms of out-of-pocket costs, am I better off doing this or refinancing at a lower rate? (Perfect credit, so would qualify for a good refi rate.) Primary goal is to pay off mortgage in the remaining 8 years or less.

  • December 02 2010 - Chicago
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Answers (21)

I would talk to a financial planner about this decision, or at least a loan consultant with a STRONG financial planning background. What the vast majority of people don't realize is there is A LOT more to this question than just the mortgage...

What you (and almost everyone else) need is to integrate their mortgage into their holistic financial plan. Yes, it is a debt, but is also a tool to be used in conjunction with all the other financial tools we have to achieve TRUE FINANCIAL SECURITY. This is a BIG PICTURE financial question, not simply a question about the mortgage. Without knowing more about you, your finances, plans, age, etc, it's really impossible to give a quality answer to this question.

Sorry I didn't answer your question at all, but hopefully I gave you (and others reading this) something to think about. Too often our narrow focus doesn't help us get to where we need to be and many of the "experts" we turn to in order to answer our questions often have that same narrow focus...

Sincerely,
Greg

  • April 05 2011
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Mortgages are interest 1st, that being said keep what you have.  As it gets down in size however, you may want to consider changing to a no cost equity line on prime minus 1.  Depending on the rates, when you get 5-7 years from your payoff.
  • April 05 2011
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Thank you, perhaps mangomilo1 will.  Have a great day.
  • March 22 2011
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I have a job but looks like you could use a new calculator. So are you offering mangomilo1 a no closing cost loan at 3.75%? If so then mangomilo1 should act on that.
  • March 21 2011
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Get a grip Clay, 10 yr fixed all day.  If you can't find a new job.
  • March 21 2011
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Tom, who is still around? This post is 3 months old. BTW, no one has a no closing cost loan at 3.75% on a loan balance of $113K.
  • March 21 2011
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Amazing some people are still around.  Do a no cost refi around 3.75% today
  • March 21 2011
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Profile picture for mangomilo1

I appreciate all of the responses and assistance. In response to Mr. Stadler, my present loan balance is $113,000. Hate the hassle of another refi - but wanted to be sure I was making a smart financial move by simply staying the course. Again, thanks for the help.

  • December 18 2010
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I believe pretty much everybody is saying the same thing here, with Mr. Stadler going above and beyond for you with the layout of the possible scenario, which most likely it's best to remain with what you currently have (unless you can get something that will save you more money by No Cost to refinance).  I think you have your consensus of opinions here;)
  • December 18 2010
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I have done the math for you on a hypothetical loan. This is why your present loan balance is important.  If you don't owe alot- don't waste you time.

If you borrowed 400k 7 yrs ago your balance would now be 249k.
The monthly payment would be 3137.17 and presently you would have $2117.13 going to principal each month.(increases monthly)
your total of payments would be 96x3137.17=$301,152.00

If you can get a 3.875 rate on  NO COST REFI your new payment would be $2506.24 with $1702.18 going to principal and the total of payments would be 120x 2506.24 =$300,748.80. You save $400.00. Dont waste your time.

Keep in mind loan has no prepayment penalty. So you can make larger payments. You are used to making payments of 3137.17
So now you have just refinanced down to 3.875 . If you make payments of $3122.27 you will pay your loan off in 92 months.
The total of payments would be 92x3122.27=287,248.84 or a savings of $13,903.16.

At present time 3.875 rate isn't available on a NO Cost Refinance, if was a few weeks ago. $13,903.16 can be alot of money to some people to others it isn't worth taking the time to refinace for $13903.16 in savings.

So the size of your loan balance is important from this scenario at 249k you can only save 14k. So if you owe 125k you will save about 7k.

The numbers don't lie, so if you want to save 14k you need to find a rate of 3.875 with NO COSTS.

Your call if it is worth taking the time.
  • December 18 2010
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Don't refinance if your goal is to payoff your loan in the shortest time frame possible.  You have been paying a larger part interest and on a 15 year loan you are now paying more priciple.  If you refiance you will be starting the process all over.  Stay on track!
  • December 18 2010
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If you should refinance do it with NO CLOSING costs. Depending on your loan balance the lender may not be able to offer you a NO COST loan. If it is only a 50k balance not worth the time or efforts. Post a  scenario on zillow and you will get rate quotes. Then you can analyze the situation. Rates have recently risen, but are slowly coming back down.

If you should do a refinance look at the 10 year fixed rate product or a 5,7 or 10 year ARM. Then run an amoritization schedule on 8 years to see what you will save in interest if you make the same payment that you are making now. With the 5 or 7 year ARM won't have to worry about your rate changing until your balance is very low
  • December 18 2010
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Profile picture for sunnyview
This mortgage calculator lets you look at how fast you can decrease your mortgage with additional payments either monthly, annually or a one time payment. You can then use a refinance breakeven calculator on this site here that allows you to see if refi or prepayment is better for your goals. 
  • December 13 2010
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Profile picture for Sharon Lewis
I agree with Aimee and Thomas. Ask a mortgage broker.
  • December 13 2010
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I'm surprised that so many answers were provided without getting any data.  Rates have increased in the past week so it may be just based on the rates that they have available to offer.  Aimee has provided a way to look at the scenario and to make a decision.

It really depends on your outstanding principal balance. You will need to do a total cost analysis to see if it makes sense.  The key does the remaining interest on your loan exceed the cost of a refi and the interest paid on the new loan.
  • December 13 2010
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  • December 09 2010
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If your goal is to pay off your loan in 8 years, it seems your on track.  Why refinance and start all over?   If you refinance you start the amortization all over and incur costs to do that.  The payment may be lower if you refinance but you are paying more fees and interest.

If you are paying on a 15 year mortgage why not douple up on your payment and you will acheive your goal.
  • December 03 2010
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If you refinance, the majority of your 1st few years of payments go to interest.  You are paying down more principal now then you did say 5 years ago.  You will also incur closings costs with a refi. 

Rates have jumped up this week. Your loan officer should be able to give you an idea of what is more cost effective for you.

  • December 03 2010
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I agree with Phillip. You should stay with your current financing.
  • December 02 2010
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You might want to consider a 10 year fixed using your same strategy.

Happy funding, Rudi
  • December 02 2010
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Keep the loan and just prepay the principal as you can.
  • December 02 2010
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