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Should I Refinance Now?

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Should I Refinance my home NowHave you thought about a refinance on your mortgage lately?  If not, you should probably consider looking into it.  In many situations, refinancing could save you tens or even hundreds of thousands of dollars over the life of your mortgage.

Mortgage interest rates have been at all time lows for a while now.  Who knows when they will start going up again, but eventually they will. It’s likely they won’t get this low again in our lifetimes, if ever.

So obviously, there has never been a better time to consider a refinance or even a first time home purchase.

 

How Will a Refinance Help Me?

Refinancing your current mortgage can save you tons of money and many years of payments over the life of your loan,  which will get you closer to debt freedom much earlier than you otherwise would have been.  However, refinancing is usually not a good idea for consolidating debt, so please don’t do that!

So let’s do a short demonstration to see just how a refinance can benefit you.

Let’s say you got a $250,000 loan a few years ago on a 5.5% loan for 30 years ( I recommend 15 years or less, by the way).  Your monthly payment would be $1,419 per month for 30 years.  The total amount of interest you would pay over that 30 years comes to $261,010.  That means in order to pay off your loan in 30 years, you would end up paying a total of $511,010 on that $250,000 loan (which is $250,000 principal + $261,010 interest).

That’s a lot of interest!

 

Mortgage Rates Are Still Low

To further illustrate, let’s say you’ve been faithfully paying back your loan for 5 years.  That means you have 25 years of payments left and you still owe $230,791 in principal and $193,631 in interest.

You see that mortgage rates are low right now and you decide to look at refinancing.  What are your options?

When you have a large number of years left on your current  loan, one of the best things you can do is to cut as many years of payments as possible out of your life.

Why?  Because it commits less years of your life to be subject to those monthly payments and it saves you a HUGE amount of interest.

 

Some Refinancing Examples

With that in mind, let’s take a look at a couple of examples of how your situation can improve through refinancing using the numbers discussed above.

  • Refinance Example #1-  Lower Payment, Less Years: You decide to refinance the remaining 25 years of your house debt into a 20 year mortgage at 3.5%, which is a competitive rate at the moment.  Your new payment would be $1,338 ($81 cheaper) and you just cut 5 years of payments out of your life.  Even better, you also end up saving $103,184 in interest over the life of the loan.  That’s over 100 G’s back in your pocket over 20 years just because you decided to refinance.  WOW!!!
  • Refinance Example #2- Higher Payment, Even Fewer Years: Now let’s get a little more serious and look at refinancing those remaining 25 years on a 15 year mortgage at 3.5%, which at the current rates is a little higher than average for a 15 year loan.  In this scenario you will cut out an entire decade of house payments!   However, your payment will go up to $1,650, so you’ll be paying $230 more every month.  But here’s the kicker, now you’ll save a total of $127,443 in interest payments over that 15 year span.  Dude, that’s SWEET!

This is how you set yourself up to become richer over time.  You set yourself up for greater wealth by asking the right questions.  Instead of asking “How much will my payment be?”, start asking “How much interest will I be paying?”  That’s the kind of question that rich people ask.

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When you start asking the right questions and start thinking about your money differently from the average Joe, you start succeeding financially.  Doing what Joe and Jane Sixpack do with their money will get you deep into debt and keep you there, because the Sixpack household is broke.

Right now is probably the best time in history to own a home in most areas of the country, but you won’t find the mainstream media talking about that.

Prices have stabilized somewhat and are much lower than they were just a few years ago.

Mortgages are the cheapest they have ever been.

 

Get a Sensible Mortgage

Although I don’t condone debt, I won’t rake you over the coals if you have a mortgage that makes sense (15 years or less, 20% down payment, payment no more than 25% of take home pay).  When it comes down to it, if you make the effort to understand your money, and what the consequences are if you don’t, then you will succeed with money.

Refinancing may not be right for you at this point in time, the numbers just may not work in your situation.  But now is a great time to check in to a refinance because the rates are still very low compared to historical norms.

Understanding why and how you should refinance, and whether it’s a wise choice for you is just one piece of the puzzle that can help start you down the road to prosperity.

So make the effort and you can save some major bucks!

Question:  Have you refinanced your home lately?  How much money did it save you?

 

Resources:

How to Be Mortgage Smart- Do’s and Don’ts For Buying a Home

 Pay a 30 Year Mortgage Over 15 Years?

Should You Take On Debt Just to Get a Tax Break?

What If Your House is Underwater?

Read more articles about Real Estate

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  • http://twitter.com/barbfriedberg Barbara Friedberg

    Signing the paperwork this week on our 15 year refi!!!

    • http://www.CFinancialFreedom.com Dr. Jason Cabler

      Awesome!  Hope you’re saving plenty of time and money.

  • Em.

    One more thing to consider:  It costs money to do a refi.  For someone with a smaller mortgage, think how else you might use that money.  I owed $50K when my hard-won 6.125% mortgage no longer made sense.  When I looked at the numbers, I realized that I could use the $1.5 – 2K a refi would cost to pay ahead on my mortgage.  Then I looked and discovered a soft $100-300 in my monthly budget most months.  Some months that was nothing, some months it was higher.  I declared there were no more windfalls in my life–all unexpected income would go against my mortgage, put my head down and charged.  That refi question ended up being an early payoff, and I am just delighted to be looking at my first year of no mortgage.  Will I miss that deduction on my taxes?  nope.  That is money I can now put to good use in charitable donations which warms me twice.  I’m quite pleased.

     

    • http://www.CFinancialFreedom.com Dr. Jason Cabler

      Congratulations!  I can’t wait to have that “no house note” feeling as well. Sounds like you made a wise decision by doing your own personal refi plan.

      Refinancing may not be the best for every situation  out there.  However, if the numbers make sense, there has probably never been a better time to consider a refi or a first purchase due to the low rates and low housing prices these days.

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