Re: Home mortgage amortization with two different interest rates?

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From: Domenic (domenic22_at_sympatico.ca)
Date: 08/06/04 

Date: Fri, 06 Aug 2004 14:58:07 -0400

I'm not in the mortgage business, but here are a few thoughts...

If the criteria for the drop in interest rate were based on paying off
20% of your mortgage instead of achieving 20% equity in your property,
then one could make the necessary calculations and compare one against
the other.

But since the criteria is based on achieving 20% equity in your
property, the calculations would be made difficult since property values
fluctuate according to market conditions. Also:

1) Who will determine the property's worth?

2) Who will pay for an appraisal, if one is needed?

Obviously, the longer it takes to achieve the target, the more interest
you'll end up paying. And worse, if property values decline during the
term of your mortgage and you never achieve the target, no savings will
be had.

In the face of such uncertainties, I wonder if that deal is really all
that "special".

In article <ddPQc.2331$KZ2.1965@fe2.texas.rr.com>,
 "Buzz L." <buzzl@lightyear.com> wrote:

> Hey, folks!
>
> I was wondering if anyone could help me use Excel to solve this problem. I
> sure would appreciate it! I've been told by a mortgage broker that I've
> qualified for the "special deal" (yeah right!) and instead of paying a PMI
> (mortgage insurance) that my interest rate will be 0.375% higher at the
> beginning of the loan and will drop to the standard rate after I've achieved
> 20% equity in the property I'm considering. The broker then extols the
> virtues of writing off the interest and how wonderful life will be if I take
> this route. I want to calculate it out because I think he's full of it.
>
> So, is there a way to calculate with Excel an initial rate (mine would be
> 6.497%) and, after I've achieved a 20% equity, drop the rate to 6.122% and
> see what the total interest would be?
>
> The whole situation gets sticky when you take into consideration tax
> concerns and stuff but I'll worry about that later. I just want to find out
> upfront if paying $30 per month for mortgage insurance is cheaper than the
> extra interest on the loan.
>
> If anyone could help I sure would appreciate it!
>
> Thanks.
>
> Buzz

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