[quote=harvey][quote=flu] And since I’m not a finance major, this might not be correct).[/quote]
I am a finance major, and your spreadsheet is incorrect.
[quote]less total interest to pay[/quote]
And that’s where it is flawed. Future cash flows must be discounted.
Total interest paid is an utterly useless value when evaluating debt instruments. A refi that drops you rate by 0.25% is not worth anywhere near $45K in today’s dollars.
The banks have done the math. You cannot outsmart them, the best you can do is understand the alternatives.
But there’s a more commonsense argument: Why would anyone pay you to buy their product?
HLS argues that if one can lower their rate with a no cost loan then it’s a no brainer to refinance. And this claim is absolutely correct. When rates are so far below your current rate that banks can offer “no cost” loans, then it absolutely is possible to lower a monthly payment at no cost other than some time and effort. There’s no debate there, but if HLS wants to keep insulting his imaginary opponents then carry on…
For the piggs who like to optimize their finances, the interesting question is whether a “no cost” loan is your best alternative in the situation where interest rates have fallen. Of course answer depends one’s personal situation. But in general if you expect to keep a property for more than a few years the long term benefit will be greater if you pay up front for a lower rate. (And yes the numbers are different if rates go down in the future, but nobody here can predict interest rate movements even if they have had a few good rolls of the dice in the past…)
Mortgage brokers peddle no cost loans because they are an easy sell. And they do have value when rates have fallen. But there may be even better alternatives.[/quote]
So you claim to be a finance major. Ok. Well let’s see then.. You mention the spreadsheet is wrong. I’d like you to fix it so we are on the same page.
Seriously, I am not calling you out because I am calling you out. I am curious just exactly what you are talking about. On page two of this thread, you can download the spreadsheet. Make changes to this, and then re upload it.
If your really are a finance major that can optimize this to a tee, let’s see it.
Until you really use real numbers no one is going to believe your claim because you haven’t shown what you claim.
Let’s.cut the bullshit crap and show me real numbers.
And this is the part that you said, that I don’t quite get
[quote]
Total interest paid is an utterly useless value when evaluating debt instruments. A refi that drops you rate by 0.25% is not worth anywhere near $45K in today’s dollars.
[/quote]
Why is this useless, it seems like you are arguing in a circular way, because just a few threads ago you mentioned that refinancing adds more to your interest balance.
No one says say anything about present value of the $45k. But now that you mention it. If you want to consider present value, then wouldn’t you also need to consider the $150/month savings in refinancing. Afterall, the $150 you save in today’s dollars is certainly worth more than now than in the future?
Again, why don’t you modify the the spreedsheet with real numbers so we can see what you are talking about.
