'Mellody's Math': Seize Chance to Refinance

ByABC News via logo
July 26, 2002, 8:59 AM

July 26 -- With mortgage rates at record lows, the time is right for first-time buyers to take the plunge into home ownership, and for existing homeowners to get out their refinancing calculators.

The National Association of Realtors expects 2002 to be a record year for home sales.Mortgage rates at 6.26 percent for a 30-year fixed-rate mortgage aren't just low. They are the lowest they have been since May 1967.

The drop in rates is luring in first-time buyers, and it has existing homeowners scurrying to refinance their mortgage.

What to Do?

Three American families from different parts of the country, with different mortgages and incomes, asked me for advice on refinancing their own mortgages. Check out their questions and my answers below, then turn to ABCNEWS.com's calculators to do your own mortgage planning calculations.

Home Mortgage Calculators.

Q U E S T I O N: Hi Mellody. My name is David and my wife, Tracy, and I live in Arlington, Va., with our two kids. We have a 30-year fixed rate mortgage at $300,000 at 7¼ percent. If we refinance now, what kind of rate could we get and is it worth the closing costs?

A N S W E R:

If you refinance at the new 30-year fixed rates, you'll save $196 per month on your payments (1 percent). That's a savings of $70,560 when all is said and done. You can save much more than that, however, if you make the same payments of $2,034 per month, since you'll be paying more of the principle each month. So if you added the $196 savings per month towards paying down the mortgage, you'd shave 6 ¾ years off your payment schedule and save $94,194 in the end. If you turn to your original lender, it's likely they will charge no fee or a lower fee for refinancing than if you were go to a new lender. If you can't avoid a fee, you should still refinance, as long as you can recoup those fees in savings, within a two-year window.Check out your savings in the table below.

Q U E S T I O N: Hi Mellody. We're the Peri family from Staten Island, N.Y. We bought our home a year ago and have recently refinanced our mortgage at a much lower rate and for 15 years. We're hoping by the time our kids are in college, we won't have to worry about our mortgage anymore. Do you think we did the right thing?