# Refinance question **URL:** \ **Category:** Factual Questions\ **Created:** [July 2, 2010, 6:13pm UTC](https://boards.straightdope.com/t/refinance-question/545328 "2010-07-02T18:13:38Z")\ **Posts on this page:** 9\ **Page:** 2
**Author:** ![RaftPeople](https://avatars.discourse-cdn.com/v4/letter/r/6f9a4e/32.png) [@RaftPeople](https://boards.straightdope.com/u/RaftPeople)\ **Post date:** [July 4, 2010, 4:39am UTC](https://boards.straightdope.com/t/refinance-question/545328/21 "2010-07-04T04:39:39Z")
> [@Darth\_Panda](#): > > This is not true when it comes to payments above the required monthly payment amount. For example even though 90% or more of your first payment will go twoards interest, any additional payments made that month will go 100% to principal. I understand that any additional will go to principal, I was making the point that there is additional interest that needs to be accounted for because a new loan is created for the refi and thus a new complete amount of interest must be paid that is front loaded in the payments. This loan, when refinanced per the op will have about an extra 35k of interest. Original=approx 450,000 Total interest paid if original loan completed=190,000 Interest paid at end of year 7=127,000 New loan of 278,000 Total interest paid if new loan completed=98,440 127,000 (int paid to date) + 98,440 (if new loan not paid early)=225,000 which is higher than the original 190,000 If the difference between orig payment (3,558) and new payment (2,091) is used to pay off balance then total interest paid on new loan=48,312 Orig loan total interest=190,000 Orig loan int paid to date =127,000+new loan interest paid with addtl payment=48,000=175,000 So you would save about 15k (unless I screwed something which is about a 73% chance) ---
**Author:** ![Darth\_Panda](https://avatars.discourse-cdn.com/v4/letter/d/ee7513/32.png) [@Darth\_Panda](https://boards.straightdope.com/u/Darth_Panda)\ **Post date:** [July 4, 2010, 5:15am UTC](https://boards.straightdope.com/t/refinance-question/545328/22 "2010-07-04T05:15:03Z")
> [@RaftPeople](#): > > I understand that any additional will go to principal, I was making the point that there is additional interest that needs to be accounted for because a new loan is created for the refi and thus a new complete amount of interest must be paid that is front loaded in the payments. > > This loan, when refinanced per the op will have about an extra 35k of interest. > Original=approx 450,000 > Total interest paid if original loan completed=190,000 > Interest paid at end of year 7=127,000 > > New loan of 278,000 > Total interest paid if new loan completed=98,440 > > 127,000 (int paid to date) + 98,440 (if new loan not paid early)=225,000 which is higher than the original 190,000 > > If the difference between orig payment (3,558) and new payment (2,091) is used to pay off balance then total interest paid on new loan=48,312 > > Orig loan total interest=190,000 > Orig loan int paid to date =127,000+new loan interest paid with addtl payment=48,000=175,000 > > So you would save about 15k (unless I screwed something which is about a 73% chance) A few beers in me, so forgive me for skipping some steps. The important thing to remember is that the new loan will have interested calculated based on the remaining principal amount, regardless of the number of payments remaining. So, if you have 100,000 remaining at 5% on a 15 year loan with 3 yaears to go, and you refinance into a different 5% 15 year loan (obviously stupid) you would still have the exact same amount of interest due next month. You would only be reducing your obligation to pay a certain amount of principal. ---
**Author:** ![spinky](https://avatars.discourse-cdn.com/v4/letter/s/59ef9b/32.png) [@spinky](https://boards.straightdope.com/u/spinky)\ **Post date:** [July 4, 2010, 7:14am UTC](https://boards.straightdope.com/t/refinance-question/545328/23 "2010-07-04T07:14:34Z")
> [@crazyjoe](#): > > Well then, we’re going to need details. Unless this was one of the government sponsored “hardship refis” I haven’ seen any deals lately where there were no closing costs. My mortgage is with wells fargo and they’re having a “no cost refinance” campaign right now. I had them send me the paperwork and I checked and double checked and there are no origination fees and no other closing costs except for $400ish for an appraisal and $19 for something unspecified. I can’t figure out what’s in it for them. ---
**Author:** ![Darth\_Panda](https://avatars.discourse-cdn.com/v4/letter/d/ee7513/32.png) [@Darth\_Panda](https://boards.straightdope.com/u/Darth_Panda)\ **Post date:** [July 4, 2010, 1:02pm UTC](https://boards.straightdope.com/t/refinance-question/545328/24 "2010-07-04T13:02:11Z")
> [@ntucker](#): > > My mortgage is with wells fargo and they’re having a “no cost refinance” campaign right now. I had them send me the paperwork and I checked and double checked and there are no origination fees and no other closing costs except for $400ish for an appraisal and $19 for something unspecified. I can’t figure out what’s in it for them. Remember - there may be costs that go others during the process. The attorneys for example. As as what’s in it for them - they may just be afraid of losing market. Or, more importantly, they may have crappy rates. Make sure to compare them against the market. > **[Bankrate: Healthier wallet, happier you](https://www.bankrate.com/)** > > Use Bankrate.com's free tools, expert analysis, and award-winning content to make smarter financial decisions. Explore personal finance topics including credit cards, investments, identity protection, auto loans, retirement, credit reports, and so... ---
**Author:** ![bashere](https://avatars.discourse-cdn.com/v4/letter/b/779978/32.png) [@bashere](https://boards.straightdope.com/u/bashere)\ **Post date:** [July 4, 2010, 10:19pm UTC](https://boards.straightdope.com/t/refinance-question/545328/25 "2010-07-04T22:19:07Z")
> [@friedo](#): > > I’ve never seen a residential loan with a prepayment penalty, but I’m sure they’re out there somewhere. They seemed to be common in California in the late 90s when all my friends were buying homes. They tended to be to prevent the borrower from refin-ing in the next X years (3 to 5, if memory serves). The borrower could prepay up to a certain percentage of the loan each year (in my case it up to 20% of the original loan amount a year). ---
**Author:** ![needscoffee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/needscoffee/32/1076_2.png) [@needscoffee](https://boards.straightdope.com/u/needscoffee)\ **Post date:** [July 5, 2010, 6:48am UTC](https://boards.straightdope.com/t/refinance-question/545328/26 "2010-07-05T06:48:49Z")
> [@ntucker](#): > > My mortgage is with wells fargo and they’re having a “no cost refinance” campaign right now. I had them send me the paperwork and I checked and double checked and there are no origination fees and no other closing costs except for $400ish for an appraisal and $19 for something unspecified. I can’t figure out what’s in it for them. Mine even included the appraisal. ---
**Author:** ![spinky](https://avatars.discourse-cdn.com/v4/letter/s/59ef9b/32.png) [@spinky](https://boards.straightdope.com/u/spinky)\ **Post date:** [July 5, 2010, 12:03pm UTC](https://boards.straightdope.com/t/refinance-question/545328/27 "2010-07-05T12:03:00Z")
> [@needscoffee](#): > > Mine even included the appraisal. Ok, so here’s a good GQ: what **is** in it for them? ---
**Author:** ![AllShookDown](https://avatars.discourse-cdn.com/v4/letter/a/d9b06d/32.png) [@AllShookDown](https://boards.straightdope.com/u/AllShookDown)\ **Post date:** [July 5, 2010, 1:41pm UTC](https://boards.straightdope.com/t/refinance-question/545328/28 "2010-07-05T13:41:42Z")
As someone said above, they don’t want to lose your business by having you refinance with someone else or they may be charging a higher interest rate. I’m in the same Wells Fargo Three-Step program and am not paying a dime in closing costs. I have so little left owing on my home it’s better for me to take out a 30 year fixed at 5.5 percent (no closing costgs) than a 15 or 30 year fixed (with closing costs) at a lower rate. ---
**Author:** ![One\_And\_Only\_Wanderers](https://avatars.discourse-cdn.com/v4/letter/o/838e76/32.png) [@One\_And\_Only\_Wanderers](https://boards.straightdope.com/u/One_And_Only_Wanderers)\ **Post date:** [July 5, 2010, 1:49pm UTC](https://boards.straightdope.com/t/refinance-question/545328/29 "2010-07-05T13:49:05Z")
I will be in this situation myself. I have 1 year to go on my fixed rate of 4.99%. Next June I will revert to 2% above base rate, which right now is 0.5%. At the time I will have to look at whatever the base right projections are then, and decide whether to re mortgage to another fixed rate, where I at least know what I am paying month to month, or carry on paying the same amount as now at a (hopefully) much lower rate and gaining some head way against my projected finish date (17 years left come next June). The downside here though is I would be vulnerable to any base rate fluctuations. [Previous page](https://boards.straightdope.com/t/refinance-question/545328.md?page=1)