Second Mortgage

Why would any bank want to refinance your second mortgage?

If you have a mortgage with Bank A. The rates went way down so you refinanced with another Bank B at a lower rate with a shorter term, i.e., from 30 year went down to 15 year mortgage.

Why would Bank B want to offer me something like that? What is in it for them?

Here you must know that most importantly, the banks invest their clients money and pay them a lower interest rate than your mortgage interest rate is, so they make money. They could sell your mortgage to an investor at a fixed rate which is lower than your mortgage interest rate.

It’s a numbers game and simple mathematics. It’s all about the money. They are in the job of making money. And this can be explained in the following way. They will be able to make lots of money off every new loan to take from them.

Let’s just say that you borrowed $100,000.00 that would be 180 payments for 15 years. Now let’s say that your new mortgage rate is five percent and now your new payments are $790.79.

On a $100,000 loan for 15 years the total Interest would be $42,342.20. Not a bad increase. You will have paid $142,342.20 for a $100,000.00 loan.

That’s why they do it, in order to make a profit. Plus you had to pay refinance fees, closing fees and those should be factored into the final cost.

You must note that in this case Bank B is getting there money back faster with a 15 year mortgage so they are making more money off your mortgage faster. It lowers their opportunity cost by having their money back sooner.

The rate should be lower but the payment will still be a bunch higher because your time period is cut in half. If you can afford to pay the payments on a 15 year mortgage do it cause you will be paying less interest throughout the span of your mortgage.

Furthermore you can go to any mortgage lender’s website so you can calculate your own mortgage payments, even your old ones.