To Refinance Or Not To Refinance

Like nearly every home owner right about now in America, we were thinking about refinancing and called our mortgage bank contact. He compared our current loan and what we could refinance it for and said that we would save about $12,000. I wanted to do a little bit of research before going ahead as I had not done any!

Before I Explain

Please note that this is not an article that tells you whether you should or shouldn’t refinance. You should do your own research and decide based on your own circumstances and probably consult professionals who do this for a living. You should also read from websites run by people who do this type of work day in and day out. However, you may use the mortgage loan refinance calculator I built to do a detailed comparison. I think the calculator I built is more detailed than anything else I could find. If you find a more detailed calculator, please leave a comment.

Variety Of Online Calculators

After reading for a couple of hours, I was certain that there is no one size fits all approach and among many other things, I wanted to do a detailed comparison of the loans with different factors built in. I plugged in my numbers in a variety of online calculators and excel spreadsheets but I really wasn’t satisfied with the level of details they were showing and some even missed the closing cost completely! I listed some of those articles below - they are useful and offer different perspectives.

• The Effectiveness of “Borrow 30-Year and Invest The Difference” article was an interesting perspective but the spreadsheet didn’t really do a side by side comparison of the loans individually. It is limited to only 15 years and it is also not built to compare refinancing as I would like it.

• The same author has another article - Mortgage Refinance and Resetting the Clock - but it still lacks the level of detail I want to see. I built a calculator that can do everything from that article except the catch up on principal part as my calculator doesn’t take in extra monthly payment. At least not yet!

• The Ultimate Refinancing Spreadsheet Calculator has a slightly different take and a nice calculator that shows you the results based on making extra payments. It lacks the level of details I want to see and yet I link it here because it does take in the extra monthly payment unlike mine.

• The Truth About Mortgages by Dave Ramsey is very opinionated and my least liked calculators in this list.

What I Wanted In A Calculator

1. To be able to compare two loans side by side
2. To be able to compare refinancing with closing cost included
3. To be able to start the comparison only after the second loan starts
4. To be able to see the numbers as long as one of the loans is active versus both
5. To be able to include mortgage interest tax savings, include any rate of return on the investment, and also include tax on the investment returns (either as capital gain or as income tax depending on where the money is invested)

Mortgage Loan And Refinancing Comparison

My Mortgage Loan And Refinancing Comparison spreadsheet - v1.0 is shared on Google Sheets under MIT license.

You can provide your own numbers in the blue box and compare your loans. Rest of the cells are locked down as this sheet is publicly shared. If you see that the inputs change by themselves, someone else might be in the sheet at the same time. Check the top right hand corner where Google shows all the users that are currently in the sheet.

You can also copy the original spreadsheet to your Google account using the link provided in the sheet.

Word of Caution

1. I’m neither an expert on mortgage nor do I do this full time. I created it for myself and decided to shared it with you. Read Before I Explain section above.
2. Choosing a loan or refinancing depends on a lot of factors than just the absolute numbers. Some of the factors that you need to keep in mind are age, duration of intended stay, interest rate, tax savings on the mortgage interest, existing debt and their rates, income tax bracket, financial markets performance, availability of pre/post tax avenues to invest, inflation, real estate appreciation/depreciation, liquidity etc.
3. The mortgage tax savings, investment tax rate, investment return used as inputs in the calculator might change over 30 year time period. To be on the safer side provide numbers that benefits you the least.

Leave A Comment

If you find anything wrong in the spreadsheet, please leave a comment and I will take a look as time permits.

What started as a one evening project ended up consuming nearly five times as much. I really appreciate if you leave a comment if you found this useful.