Have you thought about refinancing your mortgage lately? If not, you should really consider taking a look into it, because in many situations (especially with today’s rates), refinancing could save you tens or even hundreds of thousands of dollars over the life of your mortgage.
Rates are now at all time lows and have been for a while now. Who knows when they will start going up again, but they eventually will and likely 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 Refinancing Help Me?
Refinancing your current mortgage can save you tons of money, and even 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.
So let’s do a little demonstration to see just how this 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 that 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!
Rates Are Low
To further illustrate, let’s say you’ve been faithfully paying on that loan for 5 years now. 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 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 from the examples above.
Example #1- Lower Payment, Less Years: You decide to refinance your remaining 25 years of 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 year’s time just because you refinanced. WOW!!!
Example #2- Higher Payment, Even Fewer Years: Now let’s get a little more serious and look at refinancing that remaining 25 years on a 15 year loan at 3.5%, which at the current rates is a little higher than average for a 15 year loan. You will cut out an entire decade of house payments in this scenario. 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. Very nice indeed!
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 is the kind of question that rich people ask.
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 are stabilizing somewhat and are at the lowest levels in years.
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 well, and what the true 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 and see because the rates are so low right now.
Understanding why and how you should refinance and whether it’s a good time for you to do it 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!