Estimate Mortgage Payment | Mortgage Q&A: Bank Loan Executive Gives Bad Advice

Q. My spouse and we are deliberation refinancing our mortgage. We have a 30-year prearranged rate at 5.375 percent with a change of about $283,000.

The loan executive at our bank referred to we refinance to a new 30-year prearranged rate at 4.25 percent, dropping our payment by $345 per month. While this is appealing, my spouse fairly sharp out that we would be starting from graze by refinancing to a new 30-year loan. We have 23 years left on our stream loan.

Also, the Good Faith Estimate showed that our new loan amount would be $294,000 to casing the shutting costs. Our loan executive told us not to fret about the loan change since we would never grip the residence for 30 years to pay off the loan off anyway.

We of course do not outline on relocating anytime soon, but I'm not certain this creates a lot of sense. What do you think?

A. That's a awful treat and your loan executive is giving you awful advice. Telling you not to fret about the fact that the refinance would put you $11,000 more in debt is unconscionable.

Because I'm a spreadsheet nerd, we put your figures in a analogous amortization schedule. Five years after the refinance, your loan change would tumble to $266,975 and you would have saved $20,700 in payments. On the other hand, if you do not refinance, you wouldn't save the $20,700, but your loan change would tumble to $247,692 - $19,283 lower.

Your loan officer's avowal that the loan change doesn't matter since you won't grip the loan is to full 30-year tenure is ridiculous. If you confirm to sell in 5 years, you can see that the $345 monthly extra savings goes divided since you owe roughly $20,000 more to pay off the loan. If you sell in 10 years, your payment extra savings complete $41,400 but your change usually drops to $233,563. If you do not refinance, your change drops to $200,834, a disparity of $32,729. This is usually $8,671 reduction than the complete payment savings.

Am we suggesting that you do not refinance? Not at all. My recommendation has remained conform to for 20 years. Take a no-closing-cost loan. As of this writing, the rate would be closer to 4.75 percent. Your change would sojourn $283,000 since there are no fees to increase to the loan amount. The new monthly payment would be $1,476.

If you wish to pay off the new loan in 23 years, my amortization report tells me a creation a monthly payment of $1,687 would do the trick. This is $105 reduction than your stream payment.

This is a complete apples-to-apples comparison. Your change doesn't increase, your tenure doesn't increase, and your payment decreases by $105 per month.

Your loan executive should have endorsed this refinance program.

Henry Savage is boss of PMC Mortgage in Alexandria. Send email to henrysavage @ pmcmortgage.com.