My Personal Finance Journey

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Refinancing Closed, Part II: A Sweet Deal

Contributed by mm | April 29, 2004 4:02 PM PST

I am thrilled to see my refinancing deal closed with no surprising closing charges. With a final closing charge of $1,833.56 and the financing amount of $249,000, I recalculated my savings (see previous post "My (Upcoming) Refinancing Deal In Microscope" for modelling details).

Annualized Rate of Return (ARR):

Stay one year: -38%
Stay two years: 53%
Stay three years: 86%
Stay four years: 99%
Stay five years: 103%

And Net Present Value (NPV) at 10% Discount Rate:

Stay one year: -$511
Stay two years: $674
Stay three years: $1,736
Stay four years: $2,686
Stay five years: $3,534

In retrospect, I am very lucky to be able to lock this bottom rate. The most competitive 5/1 ARM rate, as reported by BankRate.com, is 4.25% now. EverBank now only offers 5/1 ARM at 4.63%, a 113 basis point jump from what I got just 30 days ago.

What is behind this mortgage rate increase is the encouraging economic reports, especially March job numbers, which fueled a spike in fixed income rate. Actually, 5-year Treasury, the notes deemed risk-free, now yielding 3.653%, a 15 basis point higher than my loan rate. What can be more fulfilling when you know someone is willing to lend money to you at a rate lower than bulletproof US Treasury papers?

I mentioned two risks when I discussed the refinancing transaction in detail earlier this month. The first risk, losing flexibility to get an even lower rate, now seems to disappear. The second risk, trapped in a rate hike after five years, still exists. (Rate hike after 5-years may wipe out the beneifts in the first five years -- reminder: I refinanced from a 7/23 balloon mortgage.) But I feel this is the risk that is worth to take.

Overall, what a sweet deal!


P.S. This is the Part II of my post-mortem refinancing series. Check out the other parts, too:

Refinancing Closed, Part I: Closing Details

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