@Payne
I think your analysis falls short.
If you’re 10 years into a mortgage the principal/interest ratio is very different from early on, which is the point of the comment you replied to.
Sure you pay a lower rate and less interest per dollar per annum, but you pay more interest over the life of the loan than just paying out the current one.
@Toby
I think this is true unless you keep the same exact number of years to finish out the loan. So if you refi a 30 that is 10 years done into a 30, you probably end up paying a lot more. If you refi into a 20 with the lower interest rate then it would be less interest. Honestly this comment you made is helping me understand amortization better.
@Toby
There is no ratio to consider. The borrower could continue to make the same payment he was previously and he would pay the loan off much faster because the extra amount goes directly towards principal.
How many months into your loan term doesn’t impact the interest you pay. Only the remaining principal balance and rate. If you refi into a new 30 year loan at a lower rate, it takes longer to pay off because you’re paying less principal, not more interest.
@Payne
You are not so hot at math I think… Yes the rate is lower, but it’s really a fact dependent circumstance. Indeed, if you are in a position to refinance and sustain the payment, you do have a lower rate and are likely to pay off sooner, but most people refinance to reduce their payment and increase current cash flow for other expenses.
This may help: Refinance Savings Calculator | Excel Bank, a tradename of EH National Bank
@Toby
I have degrees in finance and economics and have been doing mortgages for 10 years. We are talking about how much interest is being charged right now, not over the life of the loan. Of course extending your loan term will increase the total interest you pay over the life of the loan if you continue making minimum monthly payments.
However, the interest being charged for your first payment is less if you refinance to a lower rate with the same principal balance.
I’m trying to educate so no need to get confrontational about it. Pull up two amortization schedules with a $300K balance, 6% rate but one with a 15 year term and the other with a 30 year term. The amount of interest being charged for both loans is the same in month 1. The difference is the 30 year is paying far less principal, not more interest.
I’m still 6 months into my loan. Would that be impact in the interest. I thought if it’s first year it doesn’t make much different
Incorrect. You can overpay to keep the same term, or even overpay to match your current payment and actually shorten your term. You can also almost always set a shorter term light 28 years and 2 months (not wise unless you budget poorly). Please study and research further before offering financial advice.