ORIGINAL PAYMENT
$100,000 loan at 6% (30-year loan) = $599.55 or ($99.55 principal and $500 interest) first payment
After 10 years (120 payments) you will owe $83,685.79 ( $180.22 principal and $419.33 interest)
Should you do any refinancing if the interest rate is only a little lower? The answer is yes if the closing costs are very low or nothing. Here is the math:
REFINANCING AT A LOWER RATE
Your balance after 10 years $83,685.79 loan at 5.5% (30-year loan) = $475.16 or ($91.60 principal and $383.56 interest) your first payment
At first glance it may appear that refinancing is not advantageous because your only putting $91,60 down on principal and $383.56 in interest when you were putting more down on principal. But, you forgot something. Your interest rate is now lower and so is your payment. Therefore if you were to make the same payment as you were making before $599.55 or ( $180.22 principal and $419.33 interest) the math would now be:
$599.55 ($215.99 going toward principal and $383.56 interest) this is a great deal. Why?
In your first scenario your loan would have been paid off in 20 more years or 240 months. But, since you did some refinancing, your loan at the same payment will now be paid off in 18.61 years or 223.26 months which is 16.74 months sooner and 16.74 multiplied by $599.55 = $10,036.47 in savings. WOW! (APPLY NOW)
Now that you understand the power of refinancing, lets take a look at the same loan refinanced on a 15 year fixed program.
REFINANCING AT A LOWER RATE AND SHORTER TERM
Remember your current balance is $83,685.79 ( $180.22 principal and $419.33 interest) for $599.55/month
Now refinancing for $83,685.79 for 15 years at 5.0% would make your monthly payment $661.78
You may ask why you would want to increase your payment, but here is why.
By paying an extra $62.23 a month, you will take 5 years off of your loan. although over the next 15 years you will have paid $62.23 x 15 years x 12 months = $11,201.74, that money will save you $599.55 x 5 years x 12 months or $35,973. To get your net savings from refinancing, you would take away the $11,201.74 from the $35,973 to give you a total net savings of $24,771.26.
As you can see switching to a 15 year loan is always advantageous if you can afford it. It is basically the safest and best investment one could make. If you were looking for an investment and we promised you for your $11,201.74 we will pay you a guaranteed $35,973 in 15 years, would you do it? Yes you would. (Contact Us Now)
