Thursday, July 12, 2012

Let's push 15 year refinances.

If someone refinances a 30 year 6 percent mortgage (with 27 years of payments left on it) into a 15 year 2.86 percent mortgage, the payment goes up by 10 percent, which is not nothing.  But within 5 years, more than 25 percent of the principal  on the 15 year mortgage is paid down.  For those who can afford the payment, this would largely solve the underwater mortgage problem.

5 comments:

Eric Morey said...

"The average rate for a 30-year fixed mortgage fell to 3.56"
Payments of $452.40 per $100,000 borrowed.
Or $147.15 (24.5%) LESS per month compared to a 30 year 6 percent per $100,000 borrowed.

"The average 15-year rate dropped to 2.86 percent"
Or $683.87 per $100,000 borrowed.
Or $84.32 (14.1%) MORE per month compared to a 30 year 6 percent per $100,000 borrowed.
(Why am I calculating a 14% increase where you quoted a 10% increase? Did I make an error?)

One choice of refinancing an underwater property is between 15 year and 30 year terms. What incentive would convince a borrower to choose 15 over 30 years, or $231.47 (51.2%) MORE per $100,000 borrowed?

King Shah said...

Refinancing to focus on the principal debt makes perfect sense.

Richard K. Green said...

@ Eric, I am assuming there are 27 years left on the life of the mortgage being refinanced.

Amanda Green said...

Some people are seeking to pay off their mortgages before they retire; others are scarred from the financial crisis and want to chip away at debt as fast as they can. Not only do these borrowers get a lower rate, but when a mortgage is amortized over a shorter term the borrower pays less interest over the life of the loan. The trade-off is that your monthly mortgage payment likely will be higher since you're paying off the same principal over a shorter period.
Amanda
SpeedyLoan Search

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