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Mortgage options

September 30th, 2013 at 02:08 pm

We got a call from our mortgage banker. They must be trying to drum up business!

We had contacted him earlier this year about refinancing our loan to a lower rate, but none of the deals made sense with the closing costs. We're planning to have the loan paid off within 5 years, so the math wasn't really worth the hassle.

Anyway, they came up with a new round of potential offers.

Here is what he sent.
Mortgages:
7 YEAR FIXED @ 4.29 %
Monthly payment $813.02
$389.00 closing costs.

5 YEAR FIXED @ 4.29 %
Monthly payment $1,092.51

Interest-only HOME EQUITY LINE OF CREDIT
@3.24% (variable rate)
with interest payment of $159.04

None of these seem great to me or worth the hassle. I'm hazy on the details. Any thoughts?

We owe about $58k, our rate is 4.85 percent, and our payment with escrow is about $1700, with about $1200 o f that to interest and principal.











6 Responses to “Mortgage options”

  1. creditcardfree Says:

    So you would replace a mortgage with a home equity only loan? I suppose that is possible because you own more than 20% of the home. If the math doesn't work, then I would skip it all together. Why pay more?

  2. Petunia 100 Says:

    PenFed is down to 2.75% initial rate for their 30 year arm, but fixed (@2.75%) for the first 5 years. No closing costs. (Read this over the weekend on the Boglehead's Index Forum).

    I think they do make you pay back some of the closing costs if you pay in full during the first 36 months.

  3. ThriftoRama Says:

    We did some math and it doesn't seem to be worth it. The five year loan option would only reduce our monthly payment by about $20! And, there is a prepayment penalty. Boo.

  4. Jenn Says:

    I'd just keep what you've got and pay extra as you can. It seems like you have more options that way.

  5. Petunia 100 Says:

    Do you mean you have a prepayment penalty now, or that the new loan would have one?

    A 58k debt @ 2.75% will be paid in full in 60 months with payments of $1035.75.

    A 58k debt @ 2.75% will be paid in full in 54 months with payments of $1184.44.

    Your rate now is not horrible, and you are paying down so quickly that you aren't paying a ton of interest in the first place, so there is only so much to reduce. Still, every bit helps.

    The interest rate would be a reduction of 2.1%. So the first month, you'd save $58k x .021 / 12 = $101.50. The second month your balance would be a bit less, so you would save a bit less.

  6. ThriftoRama Says:

    Prepayment penalty on the new loan.

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