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Chase sent me a package in the mail telling me about this limited offer to refinance my mortgage. I don't know anything about this so I tried myself to run the numbers and was hoping someone could help me figure out if refinancing would be beneficial.

Current Balance: $92,360.00
Current Rate: 6% APR
Current Monthly payment: $704
Current Maturity Date: 01/01/2035 

New Rate: 4.375% APR (Closing costs and fee's waived)

As far as I understand it, this would put me at $168,000 in the hole for the next 30 years, but my monthly payments come down quite a bit. If I continue to my current monthly payments, I should pay it off before 2035, right? I'd save quite a bit of money too, right?

Thank you! <3

  • 1
    Why $168,000? Isn't it 92k? – littleadv Jul 26 '12 at 2:04
  • I think OP is talking about principal + interest – Asdfg Jul 26 '12 at 2:11
  • That's right, I was. Sorry if I was unclear – RoboKozo Jul 26 '12 at 4:00
  • Well, then currently you're in the hole for $250K, aren't you? 168 looks much better to me – littleadv Jul 26 '12 at 4:51
  • Check the fine print on that loan. I found terms in the offer I got from Chase to be rather unfriendly. – user4127 Jul 26 '12 at 18:30
5

If you keep the monthly payment the same, and the interest is lower; then you will be by definition overpaying the new loan therefore it will be paid off sooner.

Based on some quick calculations it will be paid off approximately 5 years sooner.

One advantage to the new loan is that you will have flexibility, you can drop the payment to the lower level for a few months because of a big financial problem and not be in default.

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The typical process is to look at the savings and see how many months it will take to break even on the closing costs. Since you've stated there are no costs, even 1/8% drop in rates is going to save you money. A savings of over 1.5% even on a sub 100K loan is nothing to ignore. You first year interest savings will exceed $1200. How many hours does it take you to earn that much money? (this is a rhetorical question, if that wasn't obvious)

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