Math Problem for all the wizards (financial)

C

Chapdog

Abreast of the situations
Friend of mine is contemplating refinancing. He is wondering if it would be worth it or not.

Originally it was a 283K 20year note at 5.25% rate since Aug 2003. He has been prepaying about $250 extra principle a month so that at this time the amortization is at 50% principle 50% interest. The current balance is 210K.

Additionally he has a HELOC with a 42K Balance that he pays about 10K on annually in addition to the minimum payment of Prime minus .25.


I told him he can prob shop for about 4.25-4-5% with zero closing 10year note for about 250k however I am not to sure if this would actually save him money as he is so far into his amortization schedule starting anew would put him back at the beginning of the amortization table.
 
I don't really know, but suspect you are correct. One would have to run the numbers each way to see for sure.
 
Chapdog said:
Friend of mine is contemplating refinancing. He is wondering if it would be worth it or not.

Originally it was a 283K 20year note at 5.25% rate since Aug 2003. He has been prepaying about $250 extra principle a month so that at this time the amortization is at 50% principle 50% interest. The current balance is 210K.

Additionally he has a HELOC with a 42K Balance that he pays about 10K on annually in addition to the minimum payment of Prime minus .25.


I told him he can prob shop for about 4.25-4-5% with zero closing 10year note for about 250k however I am not to sure if this would actually save him money as he is so far into his amortization schedule starting anew would put him back at the beginning of the amortization table.
Click to expand...

being "at the beginning of the amortization table" makes no difference at all with respect to his savings.....if he continues to make the same payments as he would have under the original amortization he will save money simply because his interest rate is lower and more of his payment is going toward principal.....

the key is how long he is going to stay in the current property....if he will be there for three years or more then any refinance which reduces his interest by 1% or more will save him money, even if his closing costs are up to $1000......with zero closing costs he will save money immediately....

the most important thing to realize about a mortgage amortization schedule is how much of your payment is going toward principal at the beginning....

if you have an $800 monthly payment and in the first month $24 is going off principle, then paying an additional $24 that month is the same as paying $800 thirty years from now.....doubling your principal each month will make a 30 year mortgage a 15 year mortgage.....
 
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