When you refinance to a lower rate, you'll get a lower payment. But the opportunities don’t stop there. Take a look:
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
There are 2 ways to make this happen:
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.
If you need to make repairs or improvements, you may be surprised at how much cash you might be able to free up without increasing your monthly payment. The same can be said for financing college educations or purchasing a second home or investment property.
There’s comfort in making a prudent decision and putting a plan into action. We're here to review your options and help you decide what might be right for you.