Mortgage on the castle

Thoughts

We originally bought our house 3 years ago when we moved here with a 30 year mortgage, similar to how most people buy homes.  We had a conventional, fixed-rate mortgage and paid three years on it.  Basically, we paid $30000 in interest and $0.47 on the principal.  With the lower interest rates that are a result of the economic climate, we recently found a lower rate and decided to refinance our home.  

We did not refinance to take out some of the equity or prolong our loan another 30 years to lower payments.  I understand that things happen and it becomes necessary to do these things sometimes, but for us, our goal was to shorten the length of the loan and pay it off a bit earlier.  

In a lot of cases, refinancing fees eat up a large portion of the benefit of refinancing.  Closing costs and title insurance and other similar fees can total thousands of dollars and, if rolled back into the principal, can negate the refinancing benefit.  We looked around some and found some interesting information.  First of all, the refinancing backlog at some banks is incredible.  The banking industry is apparently not suffering too bad (or else they run on a skeleton staff) as many places wouldn’t even call us back.  

Anyhow, our bank, it turns out, still owns our loan and has an easy refinancing option whereby they essentially reduce our rate/term for only $415.  We still have a fixed rate, prime loan at a conventional brick-and-mortar bank.  We now only have to pay on it for 20 years instead of 30.  I put together a little spreadsheet to analyze the loans and discovered that by cutting 7 years off of our loan (we already paid 3 of the original 30 years), we will save over $100,000 in interest.  Our payment only slightly changed and it is likely that by limiting my Mt Dew intake, we won’t feel any difference in our bottom line!

You can see the spreadsheet I created to have a look at your own home loan.  Basically, the yellow cells need your input.  You’ll notice an area called “extra payment” that will allow you to add additional money on your principal payment to see how a little extra money translates into a lot of extra money down the road.  You can also see the total cost of your loan which will likely be shocking.  Anyhow, have a look and see what you think!  By the way, if you don’t have excel, you can download OpenOffice which is a free replacement for Microsoft Office.  I have used this since 1998 or so and have had great luck with it.

15 thoughts on “Mortgage on the castle”

  1. Nice spreadsheet. We have been talking about refinancing. I would like to reduce our loan term. However, I don’t know if I want to raise the monthly price. The $415 is amazing. Usually it can cost 5K. Even if we don’t refinance, we are still trying to put a little extra down here and there. I may contact our mortage co and see if I can get the same deal.

  2. We are going to start paying biweekly and the savings are simillar. Please wish your daughter a Happy Belated b-day from the folks at Achorn Farm!

    Kim’s last blog post..Sneak Peek

  3. Good for you. Mr Chiots and I bought our home 7 years ago and got a fixed rate 15 yr mortgage. We’ve always paid a little extra and hope to officially own Chiot’s Run in 3 years (super exciting). It’s amazing how even paying an extra $50 a month you can save so much in interest.

    Chiot’s Run’s last blog post..What a Difference a Day Makes

  8. Wow, I knew you were doing a little remodeling but that is fantastic. Where did you find the time? And all of that cut stone?
    Congrats on the re-fi and I hope you don’t have to reduce you “Dew” habbit too much!

  9. Great spreadsheet. We just refinanced recently which while not changing our payment a lot, definitely shortended the term of our loan – which is a great thing in my book.
    Kris

  10. Loretta – we had been going back and forth but the closing costs were usually too high to be worth the trouble. But then we talked to the right people at the bank. Our initial loan was through the mortgage division. The bank division had a different program…this one with virtually no costs. I can’t figure why they have separate divisions for that…but it was worth our trouble!

    Kim – we are debating that too…to see if we can shrink this thing even faster

    Chiot’s run – we were similar in TN. When we moved here, we sort of restarted the clock which was a drag! Anyhow, congrats to you!

    June – Ward seems like a great guy!

    Caprilis – congrats!

    ETW – you are funny!

    Christy – We didn’t even consider it when we first got the loan…no idea why. Anyhow, the savings always astounds me!

    GW – I got lots of reserves…so I should be fine!

    Kris – that’s what it was all about for me…I want out of debt as soon as I can!

  11. I’m showing my nerd colors here, but I think there might be an error in your spreadsheet.

    You calculate the Cost of the Loan (B11) by multiplying F15 (first total payment) by the term (B2). However, if I add an extra principal payment to the very first check, that makes the Cost of Loan increase because the first Total Payment increases. Shouldn’t it decrease because the loan is paid off sooner?

    It seems like Cost of Loan (B11) should be calculated by Summing columns F and G but the problem is getting Excel to recognize that you stop paying your loan when the balance goes to zero. Hmm, I’ll have to continue nerding around on this.

  12. PS – Forgot to say thanks for the spreadsheet. Your site rocks – more bee posts, please.

  13. Robert – I never noticed it before, but you are absolutely right about the calculation not being correct if you add extra money to the payment. I need to cipher a bit on what the cost of the loan should be though. It really should be the sum of F while I is not negative I think…I will cipher a bit more but probably update the spreadsheet…

  15. We ended up getting a much better rate than 10%. I just made up numbers for the amount of the loan and the rate. I was surprised at how nice the rates have been.

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