Additional Principal vs. Refinance Advice

Anthony720

LoanSafe Member
Jan 17, 2018
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0
1
Hello - I am looking for some advice/insight based on fellow board members experience (or expertise if working in the industry). We have started making additional principal payments half way through 2017 and am trying to decide whether to stay on track (increasing the amount as budget allows) or if we should save the money to have cash on hand when ready to move (hopefully in 3-5 years). This may depend on whether a lender values the cash over equity in an existing home. Also, part of the equation is deciding whether a refi is the right choice since rate offers we have obtained are around 3.75% with no lender fees. We are close to reaching 80% LTV which will remove PMI and was another kicker for getting the remaining principal down quick.

Here is a quick snapshot of our situation:
Original loan: $131,000
Remaining principal: $107,000
Rate: 5.25%
Base monthly payment: $1,150 ($245 prin, $470 int, $435 escr)
We have $500 budgeted towards additional principal payment

Should we continue the additional principal payment until 80% LTV is reached and then stop/save, or continue the increased payment indefinitely until we sell? Does it make sense to deal with refinancing right now considering our circumstances and the fact that we are not planning to be in the home long-term?

Thank you for any insight, suggestions, or feedback!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,072
163
63
San Diego, California
www.loansreduced.com
Without knowing your whole scenario there is an easy way to do this calculation.

What I do to make sure a new loan would benefit the borrower is take the new loan balance (in your case let's say no lender fees and the balance stays the same), the new interest rate and plug in what you are currently paying towards principal and interest to determine how long it would take before the loan would be paid off.

In this circumstance you would pay the loan off in 16.83 years if you refinance at 107,000.00 and you make the same payment of 715.00 towards principal & Interest (of course add the escrow to this number).

The rate you're being offered is fantastic! Is it FHA? Conventional? We have been seeing a dramatic increase in rates over the past few weeks, you might want to check that again if you haven't spoken to your loan officer recently.
 

Anthony720

LoanSafe Member
Jan 17, 2018
2
0
1
Thank you Erik, I appreciate you taking the time to consider my situation and respond.

I did recheck the rates and it went up a little to 3.875 @ 15yr fixed conventional. Going to a 30yr I feel would be crazy, since this will only extend the loan duration and limit the principal with each monthly payment.

When I compare my Dec 2017 vs. Jan 2017 statements, the interest different was only $20 less - not significant enough when I could earn more with a basic savings dividend.

At this time, I am thinking the best action is to hold off on the refi, continue the addt $500 principal per month until I reach 80% LTV (approx 5 months to go). At that point, I will divert the $500 monthly (will increase as salary/budget adjusts) to a savings acct and wait until we are ready to move which I hope to be in the next 3-5 years.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,072
163
63
San Diego, California
www.loansreduced.com
You're doing the right thing by looking at long-term goals. I thought you were going for a 30 year fixed, it was boggling my mind how you were able to get something so low but that does now make sense.

If you ever need a non-biased opinion or help with determining what is beneficial, please keep my contact information with you. I originate home loans in all 50 states and have been a part of this community now for gosh, about 8+ years it seems and really take care of everyone here on the forum like family.