Refinancing to Pay Off Your Mortgage

Are you paying 'over the odds' for your home loan? If you are paying too much, does it even matter?

If you could pay off your loan years sooner without effecting the drain on your hip pocket, would you be interested?

If your interest rate is too high, you are sacrificing years of your life, condemned to pay off your home loan longer than necessary. Maybe it's time to do something about it.

Let's look at a hypothetical scenario.

Let's say you have a $350,000 mortgage with XYZ bank at 6.72%. You have 30 years to pay it off at a monthly repayment of $2,263.12 per month.Now let's also say that you discover you can refinance your mortgage at a cost of $2,000. The new interest rate would be 5.89% Is this worthwhile, and how much difference would this decision make with your loan?

If you add the $2,000 cost to your mortgage, you would owe $352,000. For this amount you would expect your new mortgage to cost $2,085.59 per month, saving you $177 per month. That sounds like a nice saving.

Let's assume you decide this is a good deal and you refinance your loan. Instead of paying the lower repayment however, you choose to keep paying the repayment amount you used to pay before you refinanced.

This means that your spare cash doesn't change. You just change lenders and keep paying exactly what you were paying before.

At this rate you could save a massive 5 years and 5 months from the life of your loan, and you are not paying any extra. You just got a better deal.

What if you did the same thing with your credit card? Sometimes you can save so much that the difference actually pays off the card in a reasonable time frame. Let's look at another example:

Card XYZ bank Visa Gold with a $7,500 Limit (and it's full. You owe $7,500). Interest rate 19.72%. Minimum repayments of 3% of the outstanding balance - which is $225 per month. (assume that you always pay this amount, even when the balance owing has reduced). You can expect to take around 4 years to pay off the card at this rate.

Your new card. A low interest card. Interest Rate 10.05% Minimum repayments 2% of the outstanding balance.

Once again, let's assume you keep paying the same $225 per month that you paid on your old card. If you do this you could expect to pay off your new card around 10 months sooner than the old card.

In both these examples, you just got a better deal. That better deal meant you got out of debt faster, for not much extra effort. It's worth thinking about.

Note- This is not advice, just examples of possible savings and scenarios. Actual savings (if any) achieved depend on many circumstances, unknowable today. Make sure you obtain personal advice based on your particular circumstances.

Graham

co-author of 'Pay Off Your Mortgage Fast'
For 6 Free tips on how to get rid of your mortgage, check out our website at:
http://www.payoffyourmortgagefast.com/

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