Mortage Refinance Math?

[TickTock]

Okay, how does this work? (Numbers are made up; I'm looking for the underlying math.)

Assume I took out a $200,00 30-year fixed mortage at 6% several years ago, have been making extra principal payments, and the statement now shows that I have ten years to go if no more extra principle payments are made.

If a ten-year fixed mortage at 6% is available with no closing costs, if I refinance with it for the remaining principal balance, do I come out ahead, exactly even, or behind? How does the math work on this?

 

[SecondCor521]

Depends on how you mean "the statement now shows that I have ten years to go" and what you mean by "ahead" and "behind".

If you mean that if you continue to make the original scheduled monthly payment then your balance will be zero in ten years, then refinancing to the new mortgage would put you basically even. The one caveat is that usually in a refinance you will end up with an extra month in there where you don't pay down the balance, so in all likelihood you would pay the new 10 year loan off in something like 10 years and 1 month from now.

2Cor521

 

[spncity]

In case you want to fool around with scenarios:

Karl's Mortgage Calculator

 

[brewer12345]

The treasure trove, from a finance professor who spent his whole career studying all things mortgage: The Mortgage Professor's Website

 

[JohnDoe]

I would do the math in Excel using the PMT function and do your own amortization, however, 2Cor521 is right - you would break even.

 

[TickTock]

Thanks for the replies!

 

[Alan]

I would do the math in Excel using the PMT function and do your own amortization, however, 2Cor521 is right - you would break even.

This is what I used when calculating my mortgage and it worked great - you can play all sorts of scenarios for yourself. Many moons ago when DD was 5 years away from college I wanted to know how much per month to pay so that my mortgage ended at the same time I started paying college fees. I used my Excel spreadsheet and paid it off in exactly the time table it calculated for me.