Go to Jeff Salisbury LWGate Home Page.From: "Jeff Salisbury" <jeff.salisbury@sdl.usu.edu>
Subject: Re-financing/more comments
Date: Fri, 16 Oct 1998 11:15:44 -0400
Next Article (by Subject): Roth conversion taxes SMabel555@aol.com
Articles sorted by: [Date]
[Author]
[Subject]
To: persfin@lists.xmission.com From: hic@world.std.com <Howard I. Cohen> Subject: persfin-digest V5 #56/Re-financing/more comments > > Date: Thu, 08 Oct 1998 15:22:23 -0400 > From: Scott Barnett <sab@crisp.net> > > >I play the 'no points no closing' (NPNC) game. - ---snip--- > > 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 principl > off each month - if I start over again, I lose that acceleration. > > Am I missing something? Dear Scott: Yes, I think what you're overlooking is that you are paying for money. When you refinance at a lower rate you simply pay off your loan balance 'for cheaper.' Getting a mortgage is really buying 'money,' and having a mortgage is 'paying' for money. If it's costing you 7.5% and you reduce it to 6.5%, you're simply paying less for the same 'money.' Like if you owe $100,000., you would save $1,000 per year. As for having a mature (4 to 5 years old) 15 year mortgage, consider rewriting your current balance on a 10 year mortgage at a lower rate than 7.5% (should be close to 6.5% or maybe even better - the shorter term usually means lower rate - less risk to the bank) and you've simply moved what you have now into lower monthly payments over the remaining term. In fact since most mortgages allow you to repay faster without penalty, you could put the savings each month into reducing the principal and pay it off faster. I'm puzzled at what mortgage people could say that was quantitative and still discourage you. Although if you talked to the people who carry your present mortgage, well they certainly don't want you to pay THEM less. Using your mechanical metaphor, no acceleration is lost. Rather the mass (as in F=ma) is lowered so the force you need to apply to maintain your acceleration is lowered. In fact I heard one financial advisor (a Boston talk show guy - with a good reputation) say that the best deal is to take the longer term which lowers your monthly payments and simply make payments of the monthly required interest, but pay off the principal as fast as you want. And--if you have a tough month, simply pay less that month- your choice, not the bank's. Your interest payment is always I(nterest) times P(rincipal). Of course an amortization schedule is a bit more complex, but not because your interest payment isn't IxP, which it always is - but because the principal is being reduced. Lowering the I reduces IxP also, and always. Talk to a reliable financial person and explore the choices, numbers and so forth. Personally, I'm not a 'financial type.' I'm a retired engineer who understood what J. Paul Getty had in mind when he said, 'the eighth wonder of the world is -- compound interest.' BTW - do you have a decent 'interest calculator' program? Most spreadsheet programs, Excel, 123, etc. offer it, as does Quicken and other 'money' programs. Then you could simply plug in the numbers and see the results. Good luck, Howard - -
Next Article (by Subject): Roth conversion taxes SMabel555@aol.com
Articles sorted by: [Date]
[Author]
[Subject]