Mortgage math is hard.
August 29, 2012 2:12 PM Subscribe
Please help me understand this mortgage math.
posted by rabbitrabbit to work & money (15 answers total) 3 users marked this as a favorite
In August 2008, I bought my first house with an FHA 30-year fixed-rate mortgage. The loan amount was $250K and the interest rate was 6%, the lender was Wells Fargo, and the P&I was around $1475, I think (don't have the old note handy). PITI was about $1850.
I just closed yesterday on an FHA Streamline refinance. The lender is still Wells Fargo and the loan amount is $238K. The interest rate is 3.5% and the P&I is $1070 (PITI is $1440). I brought almost nothing to the closing -- the lender credit was around $10K for all closing costs, including the funds for the new escrow account. I'll be getting the old escrow funds back in the mail (about $2600).
How does this even make sense, as in, how do they make money on this? They pay $10K so I can pay them $400 less per month. The loan isn't that old, so it's not a huge amount of time reset on the clock (though I understand that that is usually the catch in the refi game). The house is way underwater and we have half the income we had when we qualified the first time around. Also, we turned it into a rental last year. I understand that FHA has streamline refinance guidelines, but I also understand that most lenders have "overlays" on top of those. Does Wells not have overlays?
Bonus question: how much extra, if any, do I need to pay per month to not pay MORE interest than I would have with the original loan?