Re: Refinancing

From: "Mark Zec" <mark.zec@haremail.com>
Subject: Re: Refinancing
Date: 28 Sep 1998 18:00:14 -0500

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Rich said:
- -> From: Rich Carreiro <rlcarr@animato.pn.com>
- -> Subject: Re: When to refinance a mortgage?
- -> > I keep watching the mortgage rates drop.  How many points below my
- -> > original rate should they fall before I consider refinancing?

- -> There's no single answer.  It depends on how long you plan to stay in
- -> the house, how much in transaction fees the re-fi will cost, etc.
- -> Basically, it's worth re-financing if over the remaining time you
- -> plan to stay in the house, the money saved by the lower payments will
- -> make up for what it costs you to do the re-fi.

And J. said:
- -> From: "J. Morgan" <jmorgan@ecentral.com>

- -> Compare your present principal and interest payment to
- -> what it would be if you refinanced.  Then look at how much
- -> per month it will save.  Compare that to the cost per month
- -> of closing on the new loan, then ask yourself how long you're
- -> going to be in the home.
- ->
- -> For instance, if it costs you $2400 to refinance, and your
- -> payment drops by $100 a month, it would make sense to
- -> do this if you plan on being in the house longer than 24 months, the
- -> break even point.

Both have the same idea, but both are only partially correct.  The only
caveat to this is that you should calculate the cost savings discounting
the cash flows (cost of refinancing vs. monthly savings) to their
present values.  The cost of refinancing is immediate ($2400 in the
example above).  But $100 saved every month won't equal what the same
$2400, instead invested in stocks, bonds, mutual fund, etc., would equal
after 2 years.  Even a *very* modest return rate of 5% annually would
make the value of the investment $2646.  A return rate of 10% (not out
of the question) would return $2904 after two years.

Of course, your mileage may vary.  :)

Mark

* GST * Honesty's a good policy but insanity's a better defense.





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