Re: Refinancing

From: "Porter, Jim R" <jrporter@switch.com>
Subject: Re: Refinancing
Date: Mon, 12 Oct 1998 14:31:07 -0400

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	Scott Barnett (sab@crisp.net) quoted:
	>I play the 'no points no closing' (NPNC) game. What this does
for me is to 
	>let me jump with no historic committment to an earlier mortgage
schedule on 
	>which I had to lay out money. I estimate that I pay about 1/4
to 1/2 of a 
	>point more for that type of deal. But look at my history. I am
now 
	>processing the application for my 6th, yes 6th, NPNC. All 30
fixed.  In the 
	>last three years I've gradually moved my interest costs from
over 9.0% (on 
	>an ARM that was going up and up) to 6.75%. And the beautiful
thing is that 
	>it costs me nothing. No totally true. A couple of times I had
to pay $200. 
	>for the appraisal. (But it is nice to see the appraised value
going up these 
	>days.).......

	Then wrote:
	I'd like to understand what the "steps" were in interest that
you've
	gone to.  I have a 15 year fixed mortgage at 7.5%.  I've looked
at NPNC
	deals, and none of them save me much (if any) to make it worth
the effort.
	I'm 4 years into the mortgage, so I'm paying more and more of
the principle
	off each month - if I start over again, I lose that
acceleration.

	Am I missing something?

I used the calculators at www.financenter.com to run a scenario 
assuming a $100,000 mortgage.  If you're on your 48th month of a 
15 year, 7.5% mortgage, that payment was $404 principal / $522 interest,

with a remaining balance of about $83,000. If you refinance the $83,000 
for 15 years at 6.5%, the payment would drop from $927 to $723, saving
$204/month. If you put that $204 back every month as a additional
principal payment, your very first payment would be $477 principal and
$449 interest, and that 15 year mortgage would be paid off in 10 years
and 3 months. That would be a small reduction in the length of the
mortgage compared to keeping what you have now. To look at it another
way, if you could refinance the $83,000 balance for 11 years (the amount
of time you have left on your 15 year mortgate) at 6.5% the payment
would
drop from $927 to $881. 

You could look at what refi rates you can get and use the calculators to
see how much faster you could be paid off if you use the monthly 
savings to pay additional principal each month on the new mortgage.
Another factor to consider is investing your mortgage savings for future
growth. Prepaying on your mortgage is equivalent to investing at the
interest rate your mortgage carries. You may be able to invest the
savings to get a higher return than that.

Jim Porter
jrporter@switch.com

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