How do you maximize refinance savings on a mortgage?

You’ve taken advantage of today’s historically low rates!  Supremely smart move!  After you refinance to a lower rate you get a lower payment, but the opportunities don’t stop there.  Here are our 3 quick tips to maximize your refinance savings.

 

Reduce your balance faster. With a lower interest rate, you pay more principal with each payment, especially in the first years of the loan. Example: After five years of payments on a 30-year loan of $200,000 at 4%, you would pay $19,706 in principal vs. $17,105 on the same loan at 5%. That’s an extra $2,601 in benefit on top of the $7,052 of interest savings. Total advantage = $9,653


Own Free and Clear Sooner. There are two ways to make this happen:

Pay extra principal. Apply your monthly savings toward principal to shorten your loan term by several years.Example: Using the same loan terms from above, pay your $118/month savings as extra toward principal and cut the loan from 30 to 24.33 years.  Wow nearly 6 years!

Refinance for a shorter term. Rates on 15-year loans are typically lower than 30-year loans, so a payment on a shorter term may still be within a comfortable range for you.

Maximize Your Rate of Return Through Investments. If you deposit the $118 monthly savings from the example above into a tax deferred account earning 6% over time, it will grow to $81,852 in 25 years. If you use the savings to increase your 401K contribution with a 50% employer match, that figure would equal $122,782. Earning 6% on your money may be tough right now, yet historically, returns on a properly balanced and diversified portfolio are 7% or better. Always consult with a properly licensed financial advisor when making investment decisions.

Home Owner Stealth Moves: If you use the savings repairs or improvements, you may be surprised at how much equity you might be able to free up by making simple repairs and updates to your home.  Put the money aside for financing college educations or purchasing a second home or investment property.

Bonus! Enjoy Peace of Mind. There’s comfort in making a prudent decision and putting a plan into action.  Enjoy your low rate for 30 years!

We’re here to review your options and help you decide what might be right for you.




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2016-11-08T19:02:09+00:00 Categories: Refinancing|