New (mortgage) math

[magid]

And not in base 8 or 16, either.

Mortgages are significantly more bizarre math than that.

I got my annual notice of rate change [1], and for the first time ever, the rate went up, by an eighth of a point. I'm not complaining about that, it's still a very low number (and more than a point and a half lower than I could refinance into with the same bank, which is just bizarre [2]). The weird part is that the payment went down. Rate up, payment down. The only thing I can figure out is that they recalculated it somehow, and my paying down the mortgage has helped.

Which lead me to some online calculators. Since it's variable rate, it's a little hard to know what values to use. I tried the original terms of the loan, and checked what year my current balance would put me in (16). I tried the new terms (using the lower rate, but original principal) of the loan, and did the same (13). Presumably, I'm somewhere in between there in how far along I am towards owning my place [3].

I don't know if this is really related to how the payment decreased or not, though.

[1] I got a 5 + 1 ARM (Adjustable Rate Mortgage), which means that after 5 years, the rate changes every year. Since I got it almost 10 years ago, I'm well into the changes every year part.

[2] Conventional wisdom is that I should refinance before the rates go up again. I'm still distracted by paying the mortgage down at the lower rate.

[3] With visions of home improvement dancing in my head: built-in bookshelves in the livingroom, refinishing the floors, a closet door added, electrical work, refinishing the porch....

Comments

[cellio]

You're looking only at the P&I part of the payment and not the total payment (including escrow foo), right?

[magid.livejournal.com]

It's the P&I part of the payment that dropped, by about $35; the escrow part of the payment is pretty constant.

In my thinking about paying down the mortgage, though, I'm mentally including the escrow, since that's still money out of pocket.

(I'm one of those people excited to see the numbers change when I get my mortgage statement each month; it's incredibly motivational.)

[volta]

The payment decreased because every time they adjust your rate, your balance is lower than when you started. Every time they adjust your rate, they need to recalculate your monthly P+I payment, and the P part of that is now smaller as you owe less money.

[magid.livejournal.com]

That makes sense; I just didn't expect it to go down so much when the rate went up. It's the first time I've had a rate increase....