1. Rates for mortgages have dropped:
Should you refinance?
Here is an example from one client from an hour ago:
Client owes $277,000 on his mortgage and he is 8 years into a 30 year loan.
Payment (principal and interest only) is $1,603.
Interest rate is 3.5%
Should you refinance?
Here is an example from one client from an hour ago:
Client owes $277,000 on his mortgage and he is 8 years into a 30 year loan.
Payment (principal and interest only) is $1,603.
Interest rate is 3.5%
2. On his new loan, he can get a guaranteed rate of 3.125%, probably lower. But 3.125% for sure.
But...he starts the 30 year clock over.
His new payment will be $1,187.
So, he'll save $416 a month.
But add 8 years to the loan.
What should he do?
But...he starts the 30 year clock over.
His new payment will be $1,187.
So, he'll save $416 a month.
But add 8 years to the loan.
What should he do?
3. Answer, according to the math, is YES.
Here is why: first off, he likely won't be in the home for 22 or 30 more years in any case.
However, even if he is, if he did nothing but put the $416 in the mattress, he would have enough to pay off the new 30 year mortgage in 21 years
Here is why: first off, he likely won't be in the home for 22 or 30 more years in any case.
However, even if he is, if he did nothing but put the $416 in the mattress, he would have enough to pay off the new 30 year mortgage in 21 years
4. AND If he earned 6% on the money, he would have enough to pay off the mortgage in 17 years and 5 months.
Read that slowly.
The. Exact. Same. Dollars. Yet, he can shave off anywhere from 1 year to 4 and 1/2 years, saving him between $19,236 and $88,165.
Money arbitrage.
Read that slowly.
The. Exact. Same. Dollars. Yet, he can shave off anywhere from 1 year to 4 and 1/2 years, saving him between $19,236 and $88,165.
Money arbitrage.
5. Best of all, HE is in control of that money, not the bank.
If you want to know more about how mortgages work, here is a thread for you from January:
If you want to know more about how mortgages work, here is a thread for you from January:
6. Bottom line: MATH is a beautiful thing because it takes the emotion out of the decision.
In this case, the math made sense, so I encouraged him to pull the trigger (which he did about 20 min ago).
In this case, the math made sense, so I encouraged him to pull the trigger (which he did about 20 min ago).
7. Oh, and closing costs will be about $3,000 from the bank, so he'll make that back in 8 months.
The math still makes sense.
No, I don't do mortgages, but if you do and you're straight with your clients, feel free to plug yourself here.
/end
The math still makes sense.
No, I don't do mortgages, but if you do and you're straight with your clients, feel free to plug yourself here.
/end
