The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

September 24, 2009

Should I Refinance? Part II-The Final decesion

Filed under: Excel fun, Mortgage, Personal Finance, Real Example, Simulation — Tags: , , , , , — thebalancedspreadsheet @ 8:03 am

I would like to wrap up today my series of posts on refinancing with the decision on whether or not to refinance my $90,435 6.1% mortgage. You first might want to first ready my thoughts on why we are paying our mortgage down quickly, why to refinance and the reasoning behind refinancing with a 15 year 4.75% fixed loan.

Closing Costs-With refinancing the first question is, how much are the closing costs going to be associated with the refinance? Refinance closing costs can kind of be tricky to determine. The best I can find is a refinance closing cost calculator from Freddie Mac’s website. It estimates my closing cost to be approx $1,687 before tax savings. That means I need to have savings greater then that for a refinance to be a good financial decision.

6.1% vs. 4.75%-After I calculate my closing cost I am now ready to run the simulations. While keeping the same $2,218.10 principal and interest payment as my accelerated monthly payment , I come up with the following amortizations schedules:

6.1%
4.75%

When comparing the two schedules, the gross interest saved is $2,772 ($11,142.75-$8,370.58).

After tax savings-The $2,772 is pre-tax however. Because mortgage interest can be written off your federal income taxes as an itemized deduction, paying less mortgage interest means paying more federal income taxes. Now no one knows what tax rates will do in the future and I am not trying to predict what congress will do . I am using a 15% tax rate which is the bracket my wife and mine’s are in for 2009. When adjusting for taxes I find that I would approx save $696 by refinancing. The breakdown:

Total Interest saved

Total Interest saved

Breakeven point-I then found out that my breakeven point would be after the 24 month mark, which would be September 2011.

refi after tax breakeven point

refi after tax breakeven point

 

The Final Verdict-So is it worth it to refinance to save a grand total of $696 but only if I stayed in the condo more then 24 months would I see any return?  In the end my family decided against refinancing.  The savings simply was not worth the time it would take back to recoup my costs.  If we were not planning on paying down the mortgage as quickly as we are, then refinancing would probably make more sense.

Even though we did not end up refinancing it was still worth it to run the simulations and figure out what the best option was.  I hope you found the mortgage series worthwhile and educational.

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4 Comments »

  1. […] will pay the mortgage off on July, 2013.  I have decided against refinancing for now due to the breakeven point being 24 months.  YTD we have almost paid off $20,000 in […]

    Pingback by November ‘09 Net Worth Update (+4.23%) « The Balanced Spreadsheet-Financial News, Advice, tips, and more — December 3, 2009 @ 10:51 am

  2. […] we will pay the mortgage off on July, 2013. We have decided against refinancing for now due to the breakeven point being 24 months. For 2009 we paid off over $21,000 in […]

    Pingback by December ‘09 Net Worth Update (+4.82%) « The Balanced Spreadsheet-Financial News, Advice, tips, and more — January 2, 2010 @ 12:16 pm

  3. […] Mortgage-Another triple mortgage payment reduces the principal by ~$1,800!  I have discussed our decision to pay down the mortgage as quickly as we can before. It is really cool to see the principle reduced by big chunks every month. At our current rate, we will pay the mortgage off on July, 2013. We have decided against refinancing for now due to the breakeven point being 24 months. […]

    Pingback by January ‘10 Net Worth Update (+1.95%) « The Balanced Spreadsheet-Financial News, Advice, tips, and more — February 1, 2010 @ 11:54 am

  4. […] most important number is the months to breakeven figure.  As mentioned before when we were considering a refinance, if you do not think you will be in the house after the breakeven point, refinancing will actually […]

    Pingback by Refinance Breakeven Spreadsheet « The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice — April 3, 2010 @ 9:10 am


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