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Comment by orangepurple | Hacker News Reader

Insignificant penalty?! Maybe if all you think about is your monthly payment and not the total payment amount over time.

You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you refinance the property the amortization schedule starts all over again where you are barely paying down your principal balance. The banks always need their cut before you are allowed to build equity.

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I think the point was that people with mortgages will opt into lower interest rates but will clearly not opt into higher rates. (Assuming the interest savings is greater than the refinance cost.)

I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.

One of the biggest benefits to refinancing is being able to lower your payment and put that money to work elsewhere. Yes you can just keep making the same payment and save some money (less and less the farther along in the loan you are) but most people have debt that is at a higher interest rate than their mortgage so they're better off putting the money there.

I've seen people decry the amortization schedule before as if it's because there's some cabal of evil bankers in monocles twisting their mustaches and cackling about how they're screwing everyone over. It's just how the math works out when you have a 360-payment loan for half a million dollars - there's nothing remotely sinister about it.

Just like renting vs. buying there are times where refinancing to a lower rate will save you money in terms of total paid, and times where you may a similar or higher amount but will save in monthly payments. Like everything else you just need to do the math and see if it's worth the fees to get the new loan or not.

I've refinanced many times to get lower interest rates. Did not pay any "points" or penalties to do so.

> The banks always need their cut before you are allowed to build equity.

I've never had a mortgage that had any sort of prepayment penalty. (Always read the mortgage contract front to back to make sure there isn't one.)

Prepayment penalties are illegal after three years so there's no reason you would pay only interest for 10 years. If you can get a better loan, you can pay all the principal instantly and no more interest.

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