Should I refinance my mortgage?

Apr 12, 2013
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#1
I'm completely dumb when it comes to this stuff so I need everything explained to me like I'm 5 here. The only thing I know is I'm paying a ridiculous interest rate of 6.75%. I don't even know what that % means. 6.75% of what? Shrug.

Anyway I have a fixed 30 year mortgage. I'm 12 years in so have 18 to go, but only plan to stay another 5 or so before selling. I can't currently afford to pay any more than what I already am. What should I do, if anything at this point?
 
Jan 26, 2009
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#2
If you can get a fixed that is lower than 6.75 and lose some years on it then yeah. But I’m not sure what the rates are right now. Stay fixed maybe move to 20 years and lower rate and pay more each month to knock it back down to 18 years might save you some money.
 
Apr 12, 2013
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Ok thanks for the reply.

I found a calculator that shows the difference of 6.75% vs for example 5% interest.

I still dont understand where those numbers come from but the difference I could have paid vs what I'm going to actually pay is like $40,000. FORTY THOUSAND dollars difference.

Boy did I get suckered.
 

Mihos

Gold Member
May 10, 2009
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#5
Do you even have enough to pay closing on a refinance?

If your only there another 5 years, it doesn't sound like your going to come out ahead. Even if you were staying you may be better doing extra payments. Interest rates suck right now, so it isn't really a good time for refinancing.
 
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Oct 1, 2006
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I'm completely dumb when it comes to this stuff so I need everything explained to me like I'm 5 here. The only thing I know is I'm paying a ridiculous interest rate of 6.75%. I don't even know what that % means. 6.75% of what? Shrug.
6.75% APR (annual percentage rate) is likely the nominal interest rate, which is kind of a made up number - it's not the actual interest rate which impacts how much you pay each month. Depending on what the compounding period of your loan is (likely daily, with n=365, or sometimes monthly, with n=12), that rate is actually a daily/monthly rate of 6.75%/n. That is,

A. If you have daily compounding, your effective (actual) interest rate is 0.02% per day.
B. If you have monthly compounding, your effective (actual) interest rate is 0.56% per month.

These rates are a charge by the bank on your loan principle (remainder of how much you owe), basically a charge on your use of the money. If your principle during one payment period (generally monthly) is $1000, you would pay:

A. $1000 * 0.02% = $1000 * 0.0002 = $0.18 per day in interest = $5.55 per 30 day month in interest = $67.50 per 365 day year in interest
B. $1000 * 0.56% = $1000 * 0.0056 = $5.63 per month in interest = $67.50 per year in interest

Generally banks will use daily compounding for loans, as it generates slightly more interest in the end than monthly compounding due to leap years and gives a more uniform return, as monthly compounding gives the same "interest charge" for a 28 day month as a 31 day month.

Every month your payment goes partially towards paying off the principle of your loan and partially towards whatever interest charge was calculated for that month. The principle portion of the payment reduces your principle, which reduces the interest you will owe the next month. This in turn means the next month you will pay slightly more on your principle and slightly less in interest, and that cycle will continue until you pay off the loan.
 
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Apr 12, 2013
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^ Thanks for that info.

I really just wish I had known 12 years ago when buying that a percentage point or 2 difference could really mean 20-40 thousand dollars over the term of a loan. Instead of teaching garbage like algebra and what not in school it would have been nice to have some simple finance class on budgeting/bills/mortgages/loans/credit cards etc.

They like to keep us ignorant I guess so morons like myself keep their profits up.
 
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Oct 1, 2006
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^ Thanks for that info.

I really just wish I had known 12 years ago when buying that a percentage point or 2 difference could really mean 20-40 thousand dollars over the term of a loan. Instead of teaching garbage like algebra and what not in school it would have been nice to have some simple finance class on budgeting/bills/mortgages/loans/credit cards etc.

They like to keep us ignorant I guess so morons like myself keep their profits up.
It's because interest has a geometric effect rather than a linear one. Any little increase in interest rate, over the same period of the loan, will bring higher and higher costs. Generally interest rates <2% are basically pennies on the principle - you might find some car loans this low if you have good credit. 3-5% is normal, and >5% is generally very high.

Supposedly Einstein said that compound interest is the most powerful force in the universe. Though technically you aren't paying interest on interest in a mortgage payment, so interest really isn't "compounding" but accruing. The period is still called a "compounding period", however.

Interest can compound (i.e. interest is generated off of both principle and prior interest) on some debt like minimum-payment credit card debt, or (in your favor) in interest-earning bank accounts and other investments with relatively guaranteed rates of return.
 
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Nov 10, 2013
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Not to be rude but it’s scary that you signed on something that you don’t understand.

Anyways yes. Usually you will want to refi if rates are lower. Try to get with one of the companies that will help pay your closing costs. When we built our house we got a 4.25 percent and my wife wants to refi to try to drop pmi off which is a joke. If you have pmi and you have enough equity to drop it, it could drop your payment by hundreds a month depending on the numbers.
 
Nov 10, 2013
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#10
Do you even have enough to pay closing on a refinance?

If your only there another 5 years, it doesn't sound like your going to come out ahead. Even if you were staying you may be better doing extra payments. Interest rates suck right now, so it isn't really a good time for refinancing.
Yes you do. It’s possible to find programs that help or pay for it completely.
 

godhandiscen

There are millions of whiny 5-year olds on Earth, and I AM THEIR KING.
Mar 15, 2007
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#11
^ Thanks for that info.

I really just wish I had known 12 years ago when buying that a percentage point or 2 difference could really mean 20-40 thousand dollars over the term of a loan. Instead of teaching garbage like algebra and what not in school it would have been nice to have some simple finance class on budgeting/bills/mortgages/loans/credit cards etc.

They like to keep us ignorant I guess so morons like myself keep their profits up.
The problem is that youth education curriculums are made by educators without much of a clue of what it takes to succeed in the business world and a lot of the reason why they stay in academia. Worse than ill intent, is just ignorance.