I am planning to refinance my mortgage. I will be saving three ways with my refinance.
3. Payment schedule
I think that I calculated that I would be saving about $90,000 but the end of the 30 years term. This is an obvious savings.
TERM: With the interest rate so low, I can afford to go from 30 years to 15 years.
What I find really interesting is when I started my mortgage, my rate was 6.75% on a 30 years. My payment was about $1800 a month. Then I refinanced when the rates were 4.75%, I was able to bring my payment down to about $1500. But now, when I refinance my payment amount has gone full circle and will go back to about $1800.
From 30 years to 15 years, I would save about another $68,000. This again is obvious savings.
PAYMENT SCHEDULE: I have been researching on mortgage payments. I learned a thing or two about mortgage payments and amortization. Mortgage payment consists of paying mostly interest and a little bit principle.
Understanding the amortization, when paying mortgage payments on a monthly basis, the interest rate will recalculate at the end of the month because that is when your payment gets applied to the principle.
For example, if my mortgage payment is $1500 a month. $1000 will go to interest and the $500 will go towards my principle. So if I take out $285,000 and I make 1 payment, my principle will be $284,500, which the interest rate will be calculated.
Notice in the last graph, on a ‘true’ biweekly payment schedule, i would have save money and years. I just now started to understand a bi-weekly payment schedule and started to look for a bank/credit union that will offer bi-weekly payment schedule.
Some banks like Wells Fargo and Bank of America claim that they have bi-weekly payments. A mortgage payment will be cut into 2 smaller amounts for 1 month. This sounds great until you look really closely at the fine print; they state that they would hold the first payment until the second payment and then apply the payment as whole to the mortgage. What that means is the interest rate will still only recalculate once a month. Chase use to offer bi-weekly payments but they stopped that about a year ago (at the time of this post). Citibank also claims a bi-weekly payment, but there is a fee for every transaction. (what?? I have to pay an additional fee for Citibank to hold my money until the full month payment is received??)
For a bi-weekly schedule, the goal is to have the bank recalculate the interest rate every time you make a payment because a portion of your payment to applied to the principle. So when the interest is recalculated, it will account for the lowered principle.
This is the extra icing on top.
By just splitting my mortgage payment into two payments of $900 and the interest rate is recalculated every time the principle is applied. The amount of years changes from 15 years to 13.6 years.
I was able to find this payment schedule with the federal credit union. Although when comparing Chase mortgage rates with the credit union rates, the interest rates was 0.125% more at the credit union. But my opinion is that it is still worth going to the credit union because you can save more in the long run with the bi-weekly schedule payments. I am still in the process. So i will have to update if i can get a bi-weekly payment schedule. crossing my fingers!!
If you can’t find the information on their website, you would have to call customer service, and ask for the mortgage department. The regular customer service representative may not know the answers.
The interesting thing about the federal credit union is that they may not service underwriting of the loan but they do work with a third party mortgage servicing company, which is essentially working with the Credit union.