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22 January 2009: Refinance

At 4 pm today, I met Em at the title company in Oakland and we signed our refinance papers, hooray.  During the process I developed a simple spreadsheet to help understand the process.  The basic questions answered by the spreadsheet are listed below.   Click here for the actual Excel spreadsheet so you can run your own numbers.

Q1) How much will I save over the life of the loan?
A1) See row 15 in the table below.  If the number isn't pretty big, you might not want to refinance.

Q2) How much will I save each month?
A2) See row 10 in the table below.

Q3) How much are the closing costs and how long will it take to recoup their cost?
A3) Your lender can provide you with an estimate for your closing costs, which you input into cell C8.  The time to recoup the closing costs is given in row 14.

Q4) Should I lower the interest rate by purchasing points and if I do, how long is the payback period?
A4) This is the big question for most people, but rows 7 and 11 really help clear it up, at least for me.  Specifically, row 7 shows how much you need to pay up front for the points while row 11 shows how much you save each month from a no-point loan.  For example, with Option 2, you pay $2,468.59 for points and save $37.59 each month.  Would you rather have $2,500 in your pocket right now or save $38 each month?  Also look at row 12 which shows the payback period for the points.  If you are considering moving or refinancing within that time period, 5.5 years in our case, you should NOT purchase points.

 

A

B

C

D

E

1

Mortgage

Existing

Option 1

Option 2

Option 3

2

Loan

$520,000

$493,717.41

$493,717.41

$493,717.41

3

Term [years]

30

30

30

30

4

Number Payments

323

360

360

360

5

Rate

6.375%

5.000%

4.875%

4.750%

6

Points

NA

0.000%

0.500%

1.000%

7

Points

NA

$0.00

$2,468.59

$4,937.17

8

Closing Costs3

NA

$1,290.00

$1,290.00

$1,290.00

9

Monthly Payment

$3,244.12

$2,650.38

$2,612.79

$2,575.46

10

Monthly Savings
from Existing

$0.00

$593.74

$631.33

$668.66

11

Monthly Savings
from Option 1

NA

$0.00

$37.59

$74.92

12

Point Payback [years]

NA

0.0

5.5

5.5

13

Closing Cost
Payback [months]

NA

2.2

2.0

1.9

14

Total Cost, 4 x 9

$1,047,852

$954,137

$940,606

$927,167

15

Total Savings
from Existing

$0.00

$93,714

$107,246

$120,685

16

Total Savings
from Option 1

NA

$0

$13,532

$26,970

Notes:
1. Filled cells have values manually entered.  All other values are calculated by spreadsheet.
2. Monthly payment = Loan x [ i ( 1 + i )n / ( 1 + i )n -1 ] where i= rate / 12 and n = term x 12
3. Closing costs do not include points or interest.

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