Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, October 11, 1993 TAG: 9310080358
SECTION: MONEY PAGE: A-10 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
Would it benefit me to refinance for 15 years at 6 3/4 percent with zero points with closing costs of approximately 4 percent? Or could I achieve similar results by paying an extra $100 each month toward the principal?
My goal is to save interest and shorten the term of my loan, not to reduce my monthly payment.
A: If you can do both, you will go a very long way toward achieving your goal.
Michael Hincker, manager of the Roanoke office of Mortgage Service America, said the 4 percent closing costs seem high to him. He believes that includes prepaid taxes and insurance for the escrow account, which you would pay anyway. That money is not a true cost of refinancing.
Hincker said your first step should be refinancing.
He calculated your true closing costs at $1,000 or about 2 percent, resulting in a $54,000 mortgage.
You didn't mention your present or predicted monthly payments.
Hincker figured a $54,000 mortgage at 6 3/4 percent for 15 years would result in monthly payments of $477.85. Extended for 180 months, such a loan would mean a $86,013 total payout over the life of the mortgage.
The 15-year mortgage monthly payment should not be very different from one for $53,000 at 9 1/2 percent over 23 years. That payment should be in a range of $473 to $475 a month.
Your total payout on your present basis would be $130,600 over the life of the mortgage. Refinancing would save you a lot of money over the long term.
If, instead, you pay another $100 a month you would finish with the mortgage in less than 14 years at a total cost of $94,545.
You would, therefore, save about $8,500 if you refinance instead of adding the $100 each month.
If you can afford paying an extra $100 each month, consider doing both.
Under that plan, Hincker said, you would pay off the mortgage in just under 11 years.
Your total payout by taking both steps would be $76,100, a saving of $10,000 over refinancing alone and about $18,000 compared to adding the $100 alone.
Calculating interest
Q: I have a savings account at Crester Bank. I check my statement from the bank every month against a computer program that tracks earnings from interest rates. There is no service fee for the account, but the amount of the interest payment comes up a penny short every month. They do not seem to be rounding off to the nearest penny either. The penny is always in the bank's favor.
A penny isn't much for one account, but the bank must be making a lot of money if it deducts a penny each month from the accounts of thousands and thousands of depositors. I think this should be investigated.
A: Crestar Bank recalculated your savings account and said your interest payments appear to be correct - to the penny. They invite you to come in and review your own calculations with the regional president.
Interest is not an exact science, however. It is based on a number of underlying assumptions and policies.
Cheryl Jenkins, spokeswoman for the bank in Richmond, said Crestar calculates the amount of the interest to eight decimal places. Various systems can use more or fewer decimal points.
The bank's computer does this work on a daily basis.
But the calculation is made on the collected balance, not the ledger balance, which shows on your own records. The collected balance is the amount credited to Crestar by the Federal Reserve Bank after the deposit has cleared. That means there is a time lag from the date on which you deposit a check, for example. Many banks follow this custom because the money isn't on their books until the check actually clears.
The interest on your account is accrued at the end of the month, so that is when the interest earnings start. The interest accrues monthly because you have what the bank calls a "Key Account." On some Crestar accounts interest accrues quarterly. Interest can accrue for any period of time, depending on the bank.
And the monthly cycle varies according to the number of working days and weekends. The lastest cycle was 33 days, Jenkins said. Obviously, others are shorter.
Crestar then rounds off the penny at the end of the cycle.
Jenkins suggested you may be rounding off on a daily basis instead of carrying the decimals forward for the entire cycle. Or your computer program may use more or less than eight decimal places. And you are probably basing your calculations on the ledger balance instead of the collected balance.
There is no single correct way to handle these matters. As a result, there can be very slight differences unless the calculations are handled in exactly the same manner.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
by CNB