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 nopoint 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 Costs^{3} 
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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