by: Derek Gardner
To save money, you must live in your house longer than the "break-even period" ? the period over which the interest savings just cover the refinance expenses. The larger the spread between the new interest rate and the rate on your existing loan, the shorter the break-even period. The more it cost to get the new loan, the longer the break-even period.
But be careful. The break-even period is not the cost of the new loan divided by the decrease in the monthly mortgage expense. This broadly used rule of thumb is a misapplication of the principle that when explaining something to the buyer one should "keep it simple." Simple is fine, except for when it is wrong.
The rule of thumb does not permit for the difference in how rapidly you pay off the new loan as opposed to the old one.
Let us say that in 1996 you took out an 11% 30-year fixed rate loan, which now has a $100,000 balance and 21 years to run. You refinance into a 7% 15-year loan at a fee of $3,750.
Monthly expense on the old loan = $1019
Monthly expense on the new loan = $899
Reduction in monthly expense = $120
$3750 divided by $120 = 31 months
The rule of thumb say that you break-even in 31 months. But, because of the shorter term and lower rate on the new loan, in 31 months you would owe $7,041 less than you would have owed on the old loan. So, the rule of thumb in this case critically overstate the break-even period. Taking account of difference in the loan balance, you would actually be in advance of the game in 12 months, as showed below:
Savings in monthly expense: $120 for 12 months = $1440
Plus lower loan balance in month 12: $2620
Equals total saving from refinance: $4060
Less refinance cost: $3750
Equals net gain: $310
Next think about the case where an 11% loan taken out in 1996 was for 15 years, and now has only 6 years to run, while you plan to refinance into a 30-year loan. With the lasting term shorter on the old loan and longer on the new one, the difference in monthly expense rises to $1238. Using the rule of thumb the $3750 cost would be recovered in only 3 months. But this fail to consider the slower loan repayment on the new loan. Taking account of the slower repayment, you do not really come out in advance until 14 months out.
The rule of thumb (dividing the upfront cost by the decrease in mortgage expenses) approximates the true break-even period only if the term on your new loan is close to the unexpired term on your old loan. In other circumstances it can lead you critically off course.
The rules of thumb also ignore the detail that if you had not refinanced you could have earned interest on the money you pay upfront to refinance; and if you do refinance and the expense is reduced, you can now take home interest on the savings.
About The Author
Derek Gardner Huge amount of Home Loan quality Information on this site - Go visit! http://www.homeloan.infostairs.com
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Break Out of Your Comfort Zone
Break Out of Your Comfort Zone
by: Ted Kushner
Are you having a hard time breaking out of your comfort zone?
Everyone has a comfort zone- they are the routines in your life that you've become accustomed to. Routines and habits you are comfortable with and have a hard time changing.
-- Personal comfort zones may include certain routines you have like:
Getting up every morning- you may go to the bathroom first, then make a cup of coffee next, and then finally you may get yourself dressed, etc.. .
-- Business and financial comfort zones may include:
Your trusty day job- the one you've been going to work for at the same place at the same time doing the same thing for the past 10 or 20 years.
Or maybe it's using the same marketing method(s) over and over again without testing new ones.
-- Personal preference comfort zones may include:
Your die-hard vehicle, the trusty friend that has given you reliable transportation...
Break Out of Your Comfort Zone
Spring break > Break Out of Your Comfort Zone
Mink Coat Care
Mink Coat Care
by: Daniel Sickafus
We recommend storing your Mink coat with a professional furrier in the Spring of each year.
While it's there, have the furrier condition, clean and glaze it, regardless of how often it was worn.
Keeping your mink coat at home over the Summer will reduce it's life.
Both normal and cedar closets are not suitable for storage unless they are equipped with proper air circulation, constant 50oF and 50% humidity to maintain valuable moisture. Also, the smell from the use of cedar and mothballs will adhere to fur, leathers and wool, creating lasting unpleasant odors.
The smell of both moth and cedar balls often adhere to Mink and other fur and creates unpleasant odors. Proper cleaning and annual conditioning will remove most odors.
While you have your Mink coat at home, allow your garment proper space in your closet. Never keep your valuable Mink coat in a plastic bag. Your fur requires...
Mink Coat Care
Spring break > Mink Coat Care