Okay, I’m just bouncing some numbers around in my head and by the time someone answers I’ll probably have it figured out:
I bought a piece of property a couple of years ago. I put a good chunk of cash down, and have been paying extra on the principal every month. The loan is at 6.75%. I still owe 55k.
I can refinance at exactly 6%, for 30 years, with a total of $950 in closing cost/fees. Or I can refinace for 15 years at 5.75. Personally, I would rather have a lower payment (in case I need the cash) and just pay more on the principal on a 30 year.
Is it worth it refinance for 3/4 a % less? How about 1% less? Taking into account the 950, how long until it’s actually worth it?
The math is making me nuts here, and I’ve only been doing it for 5 minutes!
In you are able to print out amortization schedules, then I suggest this method.
Run one for your current rate, required P&I and current balance. Then one at the proposed rate, your EXISTING P&I and current balance plus closing costs. When the balances equal, you have made up for the closing costs.
The reason for using the same P&I, is that you will not have to make any assumptions on the reinvestment rate for the difference in payments. The breakeven date is probably within 3 years.
If you think you will have the loan that long, then you should probably refinance.
I can give you a very detailed analysis but I need to know how many months you still have to go.
Better if you tell me the original amount of the loan, how many months it was for, what interest rate (6.75%), how many months you have paid and how many more to go.
With that I can plug the numbers into my spreadsheet and tell you exactly what you need to know.