Mortgage Math Formula

In this video, Dave King of Mortgage Sales Manager teaches mortgage loan officers how to better show their customers the amount of money they'll save with the mortgage math formula. Most loan officers will only take a look at the difference in the amount of monthly payments and present that number to their customers. However, while the difference is important to customers, this is not an accurate comparison. These two numbers reflect different starting loan amounts, interest rates, time remaining on the loan, and amortization. Instead, Dave provides loan officers with a more accurate calculation for showing the amount of money saved: the amount owed times the interest rate differential. This will provide the first year's savings, which will go down with the balance every year after that. As an example, the video compares a $300,000 loan at 4% with a $300,000 loan at 3.5%. The difference in the monthly payments comes to $173 a month, which is what most loan officers will tell customers they're saving. Using the other formula, though, the difference is $3000 a year or $250 per month. The difference between a savings of $173 and $250 is additional amortization that occurs in the earlier years of the loan. So, when you're tasked with explaining the savings to your customers, take the time to run all the numbers as well as amortization schedules. These will make it much easier for you to demonstrate to your customers that refinancing will result in significant savings.

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