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chickenshit |
Guys, I'm in a pickle. I am looking at doing a refi and comparing my current mortgage (24 years remaining at 4.125 fixed) versus a new 15 year at 2.375 I pay extra each month which I know lowers my effective interest rate but I cannot find the formula where I could calculate at what point of "extra" payment to principal would lower my effective rate from 4.125 to 2.375... I'm stumped. Help me please. ____________________________ Yes, Para does appreciate humor. | ||
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Alea iacta est |
I think this complex calculator is what you’re looking for.  https://www.mortgagecalculator...-payment-calculator/ The “lol” thread | |||
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| Member |
more mortgage calculators here also: https://www.dinkytown.net/java...yoff-calculator.html ----------------------------- Proverbs 27:17 - As iron sharpens iron, so one man sharpens another. | |||
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Member |
A two point drop is HUGE. Unless it's almost paid off it's a no brainer for you to refi. --------------------------- “Reason, or the ratio of all we have already known, is not the same that it shall be when we know more.” — William Blake | |||
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| Member |
I am in agreement with Quattro15. Unless the closing costs are exorbitant this is a no-brainer. Good luck. | |||
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| Member |
I had to look up what you are referring to because I wasn’t familiar. At best that is a serious reinvention of the word “effective”. Paying extra principal to lessen the interest you will pay over the term is long been known to be a good way to save $$$. Saying it effectively lowers your interest rate is a bit less of a stretch. The way to lower interest rate is to get a lower interest rate. When they say it lowers the effective rate in the manner described that is semantics at best. Using your numbers a refi, straight up refi, is the way to go. Figure out actual costs divide that by the savings per month and that is your breakeven amount of months. After that you are straight up saving money. 4 down to 2 is huge. Just do it. Very few scenarios I can imagine where it isn’t your best play. Some lenders will even write it as the same term length as you currently are at if that is a factor. I’m explaining this poorly. They are saying you effectively lower the interest rate because by prepaying extra principal you will end up paying the same interest over time as a lower rate. This ignores that if you had the lower rate and made the same extra payments it would lower it even more. 4 to 2 % is huge. Refi and continue paying your extra to principal. That will save you a fortune. | |||
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| Member |
Paying extra does lower effective interest rate on a mortgage, because the interest on a mortgage is front loaded (meaning you pay the bulk of the interest at the beginning) and the formula is calculated based upon paying all of the payments. | |||
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| Member |
Do the refi at the lower rate, continue making your current payment, thus paying down even more principal monthly, and pay off your mortgage even faster. 100 percent no brainer. | |||
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| Needs a check up from the neck up  |
Email me off board, I'm a FL Title attorney and can get this worked out in a flash for you and save you coin. __________________________ The entire reason for the Second Amendment is not for hunting, it’s not for target shooting … it’s there so that you and I can protect our homes and our children and and our families and our lives. And it’s also there as fundamental check on government tyranny. Sen Ted Cruz | |||
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| chickenshit |
Thanks guys! Tim I will shoot you an email. I appreciate your offer. ____________________________ Yes, Para does appreciate humor. | |||
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| chickenshit |
Beancooker, that was the best calculator I've seen yet. I am still chasing my tail, but I've reached out to Tim to see if he can quiet the craziness in my head. I am inclined to agree with those here who see the 2 point drop and say, "go for it!" but I hate not to be able to explain this to my mathematical satisfaction. ____________________________ Yes, Para does appreciate humor. | |||
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| Just because you can, doesn't mean you should |
Look at a simple loan amortization and the total interest paid in both situations and compare. To make it even more complicated, use the extra you save each month to pay down or shorten the loan term and see what that saves. ___________________________ Avoid buying ChiCom/CCP products whenever possible. | |||
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| Savor the limelight |
That’s because it doesn’t work that way and there is no formula to find. Making principal payments early will never change your interest rate. Rather, it changes the amount the interest is based on and thus lowers the total amount of interest you pay over the life of the loan as well as shortening the term of the loan. For example, you borrow $100,000 at 5% per year. At the end of the year, you’ll owe $105,000. Let’s say you pay $55,000 towards the loan at the end of the year. You’ve paid the $5,000 of interest and $50,000 of principal. At the end of the next year, your interest rate is still 5%, but you only $50,000 of principal, so the the interest will be 5% of the $50,000 or $2,500. The interest rate does not change. Your refi question should be based on the costs of the refi vs what you are currently paying. If there are no cost to refi, then the drop in rates saves you money no matter what. The other question is whether or not you can afford the new payment amount. | |||
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| Slayer of Agapanthus |
You need to take a logarithim and solve for the exponent 'x'. I can post after work "It is only with the heart that one can see rightly; what is essential is invisible to the eye". The Little Prince, Antoine de Saint-Exupery, pilot and author, lost on mission, July 1944, Med Theatre. | |||
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Member |
A bit of a thread drift but as a Looong time user of the HP12C financial calculator, I'd recommend everyone learn how to use one of these. It's available on the app store for the iPhone and iPad. It is next to magic for loan calculations of all types. Trust me - I was a banker. I'm sorry if I hurt you feelings when I called you stupid - I thought you already knew - Unknown ................................... When you have no future, you live in the past. " Sycamore Row" by John Grisham | |||
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| Savor the limelight |
I used the 19BII through college and beyond. It was so much more intuitive than the 12C. There was almost no learning curve. Sadly, leaking batteries got it about 10 years ago. | |||
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I Deal In Lead |
A 24 year mortgage vs. a 15 year mortgage is a no briner. Go for the 15 years and get it paid off ASAP. | |||
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His Royal Hiney |
umm, no matter how much extra payment you make, it's not going to lower your effective rate. That's just plain math. And I'm saying this as someone with an MBA with a concentration in Finance. Just from the available information, if you can get an actual APR of 2.375 versus your current 4.125 (meaning no origination fees or points and 2.375 is that APR that shows up in the big boxes at the top of your loan documents), I would get the 2.375%. If you want, you can pay extra or even the same amount as you're paying now with the 4.125 fixed (if the 15 year payment is lower) and you will pay off the mortgage even sooner than 15 years. "It did not really matter what we expected from life, but rather what life expected from us. We needed to stop asking about the meaning of life, and instead to think of ourselves as those who were being questioned by life – daily and hourly. Our answer must consist not in talk and meditation, but in right action and in right conduct. Life ultimately means taking the responsibility to find the right answer to its problems and to fulfill the tasks which it constantly sets for each individual." Viktor Frankl, Man's Search for Meaning, 1946. | |||
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| His Royal Hiney |
You're incorrect, Jimmy. "effective interest rate" has a specific definition and it's not because of the "front loaded" interest. The effective interest rate takes into account the upfront fees associated with the loan such as what I mentioned in my post above - origination fees and loan points - not any interest paid on the balance. For example, if you took out a loan for $100,000 at an APR of 5% with no origination fee or points, then your effective interest rate is 5%. If you took out a loan for $100,000 at an APR of 5% with 5 points - meaning you pay $5,000 for the loan or supposedly to get the low interest rate, then the effective interest rate is not the same as the APR. You're "effectively" taking a $95,000 loan and paying 5% on $100,000 balance. So for the first year and just using yearly numbers, $5,000 / $95,000 is 5.26% as the effective interest rate and the APR is 5%. "It did not really matter what we expected from life, but rather what life expected from us. We needed to stop asking about the meaning of life, and instead to think of ourselves as those who were being questioned by life – daily and hourly. Our answer must consist not in talk and meditation, but in right action and in right conduct. Life ultimately means taking the responsibility to find the right answer to its problems and to fulfill the tasks which it constantly sets for each individual." Viktor Frankl, Man's Search for Meaning, 1946. | |||
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Ammoholic |
What? That makes no sense. Paying more will lower your total interest paid, not the rate. Jesse Sic Semper Tyrannis | |||
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