Refinancing!!!
We know that in the initial months what we payback to the back is mostly interest. That means the max profit the bank could get from us is taken in the initial years of the loan itself. Now when I refinance, ain't I gonna pay higher amount of interest once again. And somehow will be ending up paying more interest overall on the total loan amount taken cause each time we refinance the term is readjusted to go beyond the initial 30 years(or whatever term). How do we justify this financially and what's the best way to tackle it. (I understand financial bandwidth and priority for everyone would be different, but looking for a mathematical/logical solution for the majority.
When you refinance, if the home price has gone up in value, you can do cash out refinance and pay towards the principal. This will reduce the loan term and lifetime interest. If the home price has not gone up, the refinance will be on the outstanding principal balance. But as you mentioned the loan term will now be back to 30 years potentially increasing lifetime interest, so you have to do the math before refinancing. Donβt forget to add refi costs.
Good idea but according to a loan agent, cash out refinance rate could be much higher.
This is terrible advice, do not do this
You pay the same interest rate throughout the course of the loan. The interest is not front-loaded. You pay more interest at the beginning because the principle is higher and the payment is determined by amortizing over 30 years. You are adding time to the loan though through refinancing so the re-amortization over the longer term will result in more interest. You can avoid this if you want by simply paying extra principle each month so your principle decreases on the schedule of your original loan amortization.
Does paying extra towards the principle monthly bring any change to the monthly interest payment or the mortgage payment?
Your payment amount is fixed for the life of the loan however paying extra will reduce the length of your loan. (You can google search an early payment calculator to see how much time will be taken off for various extra payments). Essentially the extra payment reduces your principle earlier than your amortization schedule so the amount of interest you owe for subsequent months is lower and more of your payment goes towards principle ultimately reducing the length of the loan.
Refinance only for the number of years left on the current mortgage. Don't renew for 30 years unless your only goal is to lower monthly payments.
Even then the amount of interest you pay overall would be high, unless it's a significant difference in interest rates
Well no, because the loan is shorter and smaller. For recent buyers especially the later is the key as rates were in the 4s last year but are down to 3 now.
Pay off the loan/mortgage. Problem solved
Are u willing to lend some money without interest for that π€
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Refinance with a no cost loan. You get lower rates and dont pay any fees. You only pay for accrued interest. If insurance and property taxes are due at time of closing, then you have to pay them.
How does it work? They always quote me with closing cost, appraisal fees, etc.
There is always fees (appraisals, insurance, taxes etc depending on the state) if fees are small bank can give you credit or cover those knowing that first month interest will cover those costs for them.