[quote=FlyerInHi]I just read this thread quickly.
Harvey is right, you have to evaluate the NPV of different alternatives based on the info you have today. That means is you want to keep the house/loan for a number of years it makes sense to buy down the rate. The loan with cost might be a better alternative.
One thing I remember about finance is that we assume that capital is unlimited or readily available, so we should choose the investment with the highest NPV. Problem is most people don’t have the cash to select the best alternative.[/quote]
Ok, show us then.
Now both Harvey and you are claiming to know how to evaluate this with NPV. I have yet to see anyone do this with numbers. Without that, to me that just seems like people just want to (again) argue for the sake of arguing.
So why doing either you or Harvey show us what you are talking about. Afterall, both of you seem to have a lot of time to be talking about politics on an RE forum..Asking you to show how how NPV works out in this case should be a walk in the park, for finance majors, right?
IT seems like now that BOTH you and Harvey brought up NPV to this discussion, you brought it up in a backassward way. Because, correct me if I’m wrong, but if someone is saving $150/month in the near term, isn’t that $150/month freed up today available for someone to use EITHER to pay more principal on a mortgage OR to invest it elsewhere?
So in the case of paying the mortgage off early, it’s like putting that $150/month to work in a 3.75% ROI… Or if the person doesn’t pay that extra $150/month and invests it elsewhere, whatever that ROI is? In either case, how is either or both scenarios worse off than not refinancing and having to pay the bank an extra $150/month, when at the end of either loans (either continuing to pay loan 1 or refinancing to loan 2), neither is really paying more total interest (which Harvey now also says, evaluating total interest is meaningless), and if the bank is also adding a cash rebate up front of $5-10k?
Of, if one does want to bring up NPV, isn’t it also incorrect than to compare loan1 and refinanced2loan by total interest paid having to be equal, “otherwise you lose”? Afterall, if you refinance and extend your loan out an additional 5 years, interest paid for those 5 years, even if more also needs to be discounted to present value and compared to the ROI of your cash back up front and the $150/month cash savings you get immediately?
This doesn’t appear to be rocket science, but now you folks are bringing up NPV and seems like over-complicating things.
