Question by Marcus: Isn’t refinancing a mortgage or car payment a terrible idea, it just doesn’t add up, can you explain it?
I don’t understand, why would you borrow money with a lower interest rate, to pay off borrowed money? Won’t you have to repay that refinanced funds? I clearly do not have a full understanding of this subject, and would appreciate a clear and concise answer to it, 10pts!
Okay mom, but eventually you’ll have to repay that mortgage too won’t you, thus adding to what you already owe?
Answer by Huntsman
Also it does not make sense when people re-fi for less than a 1% reduced interest.
They have to pay closing costs which can run up thousands.
If most of these people did the math, they could realize they could just put the thousands as an extra payment to their mortgage and come out ahead
Why do people refinance usually?
1. Lower interest rate in case they intend to keep the home for many years
2. They are in a financial mess and need lower house payments, no matter what the costs
Give your answer to this question below!
To save money
Current Mortgage and interest paid is 800 a month. Refinance at a lower rate and monthly interest is 500. Savings 300 a month
The part you are missing is that the new loan pays off the old loan. You are not adding to what you owe.
If my mortgage balance is $ 50,000 at 5% interest, and I refinance at 3.5% interest, this is what happens:
1. The new bank sends $ 50,000 to my old bank which pays off my original 5% mortgage.
2. I now owe $ 50,000 to the new bank at 3.5% interest.
I still owe $ 50,000, but at a lower interest rate after refinancing. This is oversimplified a bit as it ignores any fees, but it shows the general idea.
Refinance means getting a new loan to pay off the old loan. Just finished a mortgage refinance – went from 20yrs of pymts to 15 yrs and 2% less interest. So my monthly payments are less and I save about $ 32,000.00 in interest. NO CLOSING COSTS!! If the cost was more than the amount of savings, I wouldn’t have done it, duh.