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Re: Analyzing the mortgage payoff option
Old 06-22-2005, 11:57 AM   #41
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Re: Analyzing the mortgage payoff option

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Re: Analyzing the mortgage payoff option
Old 06-22-2005, 06:16 PM   #42
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Re: Analyzing the mortgage payoff option

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Hi Laurence,

I don't really know the details.* I just looked up rates on one of the online mortgage calculators and it claimed the going rate on 30 year fixed was 5.21% while the 5/1 ARM was 4.6%.* That would translate into loan payments of $6596.76 for the 30 year fixed and $6151.68 for the ARM on $100,000.* The saving would be $445.08 per year per $100,000.* He indicated that he refinanced approximately every other year, so he would be saving about $900 per $100,000 over that period.* My reccolection is that the spread between 30 year fixed and ARMs has been greater than that in recent years, but I'm not sure.* *I think that would probably more than pay for the refi charges, but it wouldn't pay enough to make me want to fill out the paper work.* *

Have funds will travel:
I agree.* *
OK, but did he figure in the amount of time he would have to pay on each loan?* I.E. with the 30-year fixed he has only 28 years (the original 30-year loan term minus the 2 years he's already paid on it) to go to payoff: $6596.76X28=$184,709.28 paid out over the lifetime of the loan.* With the 5/1 ARM refi, he has to pay for 30 more years: $6151.68X30=$184,550.40.* The savings is $158.88.* * Surely the refi costs are more than that . . .*
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Re: Analyzing the mortgage payoff option
Old 06-22-2005, 09:56 PM   #43
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Re: Analyzing the mortgage payoff option

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Originally Posted by Patrick
OK, but did he figure in the amount of time he would have to pay on each loan? I.E. with the 30-year fixed he has only 28 years (the original 30-year loan term minus the 2 years he's already paid on it) to go to payoff: $6596.76X28=$184,709.28 paid out over the lifetime of the loan. With the 5/1 ARM refi, he has to pay for 30 more years: $6151.68X30=$184,550.40. The savings is $158.88. Surely the refi costs are more than that . . .
My bet is he views it as a car lease. Why tie up the money now? I'm just going to trade up, and I'm always going to have a house payment.

Not for me but to each his own.
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Re: Analyzing the mortgage payoff option
Old 06-22-2005, 10:29 PM   #44
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Re: Analyzing the mortgage payoff option

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Originally Posted by Patrick
OK, but did he figure in the amount of time he would have to pay on each loan?* I.E. with the 30-year fixed he has only 28 years (the original 30-year loan term minus the 2 years he's already paid on it) to go to payoff: $6596.76X28=$184,709.28 paid out over the lifetime of the loan.* With the 5/1 ARM refi, he has to pay for 30 more years: $6151.68X30=$184,550.40.* The savings is $158.88.* * Surely the refi costs are more than that . . .*
Yes. He did mention that he had calculated how much he needed to add to the loan to stay ahead of the creeping terminal time limit. I also believe that I've gotten regular junk mail offers for ARM loans that were quite a bit lower than the numbers I found on the web last night. Plus, comparing the 30 year costs without accounting for inflation, etc. is probably not a very reasonable thing to do.

By the way, I'm not interested in pursuing this myself for a number of reasons, but I thought it was interesting that someone (who is fairly sophisticated financially as far as I can tell) wanted to pursue such an approach.
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