Loan Amount               Years               Rate                 Payment                                   Total interest

$250000                      30                    7.5 %               $1,663.26                                   $348,769.07

Four years later (January 2009) the current balance of the mortgage would be $238,686.18 Do you realize you have paid over $68500 in interest in those 4 years? Here’s the math: $1,663.26 X 48 months = $79,836.48 minus $11,313.82 in principal reduction = $68,522.66. Now let’s refinance the $238,686.18 balance at 5.5% for 30 years. The new monthly payment is $1,355.23. Look at the mortgage:

Loan Amount               Years               Rate                 Payment                                   Total Interest

$238,686.18                30                    5.5                   $1,355.23                                     $249,200.00

The total interest on the refinanced mortgage is $249,200 for 30 years. But remember, you have already paid $68,522.66 in interest over 4 years on your original mortgage. Your total interest costs will be $317,722.66 ($249,200 plus $68,522.66) over 35 years! Obviously you have lowered your monthly payment by $308.03, but you have increased your total interest costs and will be in debt 4 years longer.

What would be the result if you refinanced but continued to make your ORIGINAL payment of $1,663.26 on the NEW loan?

PLAN 7: REFINANCE BUT CONTINUE MAKING ORIGINAL PAYMENT

Loan Amount               Years               Rate                 Payment                                   Total Interest

$238.686.18                     30                    5.5                $1,663.26                                 $151.285.08

By prepaying on the refinanced loan, the loan will be paid off in 19 years and 7 months and your interest costs will only be $151,285.08. Add to the $151,285.08 the $68,522.66 from the original mortgage and your total interest will be $219,807.74. This is about $129,000 less than if you did not refinance, and $22,000 less if you refinanced but did not prepay!!

As you can see, if you are comfortable with your old payment and refinance, the savings are incredible!