Home Refinance Scenario:
I recently received an advertisement for refinancing my mortgage (see below), with a current balance of 163,000. With interest rates at historic lows, I’m interested in refinancing, but am quite apprehensive. I showed the letter to some of my friends and got mixed advice. So I would like you to clarify the situation for me. Currently I have 250 payments on my 30-year fixed mortgage at 6.5%.
Also I have a friend, Amanda, who is a mortgage consultant. She’s told me something about a 5/1 10 ARM that could be nice. So I was wondering if I should stay with my current mortgage, take up Chase’s offer, or go with ARM? On the basis of the total interest that I would pay for the lifetime of the mortgages, I would like you to advise me on the following three options.
a. Continue with the 30 yrs fixed loan at 6.35% for 250 more payments.
b. Chase’s offer (see below)
c. 5/1/10 ARM
Assume that for the first 60 months the rate stays at the introductory rate of ___%. (Note: For 5/1/10, the introductory rate stays the same for the first 5 years, the rate can be changed each 1 year period, and the largest total change is 10%.) (For test purposes, please contact Dr. Pat for your personal introductory rate.) Note: To reduce the amount of work on this, let’s assume that the rate goes up 1.25% every five years with the maximum rate that it can be is 14.23%. This way we can work in 5 year increments and save some time.
This is an actual letter that Dr. Pat received in the mail. (Normally, I’d change the name to protect the innocent, but we all know Dr. Pat was never a boy scout.)
Dear Patrick J Averbeck,
The new federal mortgage program could be a great opportunity for you to save money. As a responsible homeowner and a valued customer, you could refinance your existing mortgage balance—up to 125% of your home’s current value. And, with today’s low rates, you could lower your monthly payment—as of August 31, 2009, our fixed rates have dropped to just 5.36% APR.
Here’s an estimate of how much you could save if you refinance your current $163,000 mortgage with Chase.
Current Payment
(principal & interest)
New Payment
(principal & interest)
Monthly
Savings
Annual
Savings
$1,190 $899 $291 $3,496
You are one of our most valued mortgage customers, and you meet the preliminary criteria for our streamlined process with reduced income and asset documentation. This means you may be able to refinance your loan much faster---at a very competitive rate. In addition, we’ll waive your origination fee, your appraisal fee, and credit report fees, which can save you up to $1,000 on your mortgage transaction.
Fixed Rate Payment option:
PMT = P x (APR)
N
___________________
1 – (1 + APR ) (-ny)
N
163,000 x (0.065)
12
________________
1 – (1 + 0.065) (-12x30) = 882.9166667 = 1,030.270879
12 -0.856975272
I recently received an advertisement for refinancing my mortgage (see below), with a current balance of 163,000. With interest rates at historic lows, I’m interested in refinancing, but am quite apprehensive. I showed the letter to some of my friends and got mixed advice. So I would like you to clarify the situation for me. Currently I have 250 payments on my 30-year fixed mortgage at 6.5%.
Also I have a friend, Amanda, who is a mortgage consultant. She’s told me something about a 5/1 10 ARM that could be nice. So I was wondering if I should stay with my current mortgage, take up Chase’s offer, or go with ARM? On the basis of the total interest that I would pay for the lifetime of the mortgages, I would like you to advise me on the following three options.
a. Continue with the 30 yrs fixed loan at 6.35% for 250 more payments.
b. Chase’s offer (see below)
c. 5/1/10 ARM
Assume that for the first 60 months the rate stays at the introductory rate of ___%. (Note: For 5/1/10, the introductory rate stays the same for the first 5 years, the rate can be changed each 1 year period, and the largest total change is 10%.) (For test purposes, please contact Dr. Pat for your personal introductory rate.) Note: To reduce the amount of work on this, let’s assume that the rate goes up 1.25% every five years with the maximum rate that it can be is 14.23%. This way we can work in 5 year increments and save some time.
This is an actual letter that Dr. Pat received in the mail. (Normally, I’d change the name to protect the innocent, but we all know Dr. Pat was never a boy scout.)
Dear Patrick J Averbeck,
The new federal mortgage program could be a great opportunity for you to save money. As a responsible homeowner and a valued customer, you could refinance your existing mortgage balance—up to 125% of your home’s current value. And, with today’s low rates, you could lower your monthly payment—as of August 31, 2009, our fixed rates have dropped to just 5.36% APR.
Here’s an estimate of how much you could save if you refinance your current $163,000 mortgage with Chase.
Current Payment
(principal & interest)
New Payment
(principal & interest)
Monthly
Savings
Annual
Savings
$1,190 $899 $291 $3,496
You are one of our most valued mortgage customers, and you meet the preliminary criteria for our streamlined process with reduced income and asset documentation. This means you may be able to refinance your loan much faster---at a very competitive rate. In addition, we’ll waive your origination fee, your appraisal fee, and credit report fees, which can save you up to $1,000 on your mortgage transaction.
Fixed Rate Payment option:
PMT = P x (APR)
N
___________________
1 – (1 + APR ) (-ny)
N
163,000 x (0.065)
12
________________
1 – (1 + 0.065) (-12x30) = 882.9166667 = 1,030.270879
12 -0.856975272