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The Power of a Quarter (of a percent)

by Douglas Evan Dahl – Broker circa 1987 | Publisher

Check This Out

Let’s assume that you borrowed $500,000 on a 30-year fixed rate loan with a rate of 6%.
Your payment would be $2,997.75

Let’s also assume that you have been making regularly scheduled payments for the past 24 months. At the 24 month mark, your balance would be $487,341

Here’s the math on a new 30-year fixed loan with a new lower rate of 5.75% or, a quarter of a percent lower:

Loan Amount:    $487,341
Interest Rate:     5.75%
Payment:            $2,843.99

Savings

If you were to accept the new terms as is, your benefit would be a $153.76 reduced mortgage payment.  But wait, it gets better..

If you were to accept the new terms, but you continue to make the ‘old’ scheduled payments of $2,997.75,
Your new loan would be paid off approximately 20 months sooner thus saving you nearly $60,000.

This is all because less interest is due each month and by paying the same amount as on your prior loan, more will come off your balance each month.

Are there variables in the math?  Of course. If you paid more than your minimum payment on the old loan, this just means that your balance is lower. Same rules apply and you will always save in the in the long run.

Should you refinance given the opportunity to save a quarter of a percent?

In most situations, the answer is yes however in most situations, you will save.  Maybe just a bit less than the example above.  Any fees associated with refinancing will lower the amount of the overall savings, and you will need to ask yourself just home long you plan on keeping your home as there will be a timeline in which this may not make sense. In the example above, I used a ZERO FEE loan which basically means, it’s a true no brainer.

When NOT to Refinance

If you plan on selling your home in a time period before the savings outweigh any fees, this may not work. Ultimately, you should rely on the help of a professionally licensed Mortgage Broker or Loan Officer. They will be able to do the math and explain the benefits of refinancing so the two of you can collectively make the decision to move forward or now.

Have a Featured Loan Pro Notify you when a REFI Opportunity becomes available.  Search For a Loan Professional here.

Questions or Comments?  Send an email to broker@gotohome.com  and we’ll respond asap. We may even update our blog with your question and answer. 

A new potential Biden rule will redistribute high-risk loan costs to homeowners with good credit

A Biden administration rule is set to take effect that will force good-credit home buyers to pay more for their mortgages to subsidize loans to higher-risk borrowers.

Experts believe that borrowers with a credit score of about 680 would pay around $40 more per month on a $400,000 mortgage under rules from the Federal Housing Finance Agency that go into effect May 1, costs that will help subsidize people with lower credit ratings also looking for a mortgage, according to a Washington Times report Tuesday.

“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” Ian Wright, a senior loan officer at Bay Equity Home Loans, told the Times. “It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”

US REAL ESTATE MARKET IN ‘BIG TROUBLE,’ EXPERT WARNS

The Federal Housing Finance Agency, which oversees federally backed home mortgage companies Fannie Mae and Freddie Mac, has long sought to give consumers more affordable housing options. But those who work in the industry believe the new rules will only serve to frustrate and confuse people.

“This confusing approach won’t work and more importantly couldn’t come at a worse time for an industry struggling to get back on its feet after these past 12 months,” David Stevens, a former commissioner of the Federal Housing Administration during the Obama administration, wrote in a social media post responding to the new rules. “To do this at the onset of the spring market is almost offensive to the market, consumers, and lenders.”

The rules come as the housing market has struggled in the wake of multiple interest rate increases by the Federal Reserve.

Under the new rules, consumers with lower credit ratings and less money for a down payment would qualify for better mortgage rates than they otherwise would have.

Standby. MortgageMarketMentor will keep an eye on this.
For now, pray for better sensible people to help lead our country.

Questions or Comments?  Send an email to broker@gotohome.com  and we’ll respond asap. We may even update our blog with your question and answer.