Added March 28, 2012 By Carrie
Links may be affiliate or referral links. Full Disclosure
So you’ve heard that interest rates are at an all-time low, but if you’re like me, you probably have a hard time figuring out exactly how much a refinance would actually save you. So, as part of our partnership with Trusted Lending Advisors. I asked Tim to give us a couple of example scenarios on what you could save by refinancing.
NOTE: both P&I (Principal & Interest) and PITI (Principal, Interest, Taxes, and Insurance) are discussed here to clarify monthly payment info.
Let’s say you purchased your home sometime in 2005 and have now made 80 payments. Your mortgage might look something similar to this:
Original Mortgage Balance. $200,000
Interest Rate and Term : 6.0% on a 30-year fixed loan
Monthly Payment : $1199 (Principal & Interest) – approx. $1400 “PITI” or total payment ($201/month estimated for taxes and insurance)
Total Interest Paid Over 30 Years. $235,813
Interest Paid After 80 Payments. approx. $76,000
Remaining Interest = $159,813
Right now, we’re seeing interest rates of 3.375%-4.375% depending on loan program and credit scores. Here are two scenarios to consider if you were to refinance today at these rates:
NOTE: These are only examples- rates/fees are subject to change and dependent on credit scores, loan program, and other factors
Scenario 1: New 30-year loan to lower monthly payment
Mortgage Balance. $183,000 to pay off estimated $180,000 loan balance and roll closing costs into the new loan.
Interest Rate and Term. 4.25% on a 30-year fixed loan
Monthly Payment. $900 (P&I) – approx. $1101 “PITI” or total payment ($201/month estimated for taxes & insurance)
Total Interest Paid Over 30 Years. $142,353
That’s a monthly savings of $299 .
This option would “start the clock over” on a new 30-year loan, but in addition to the $299/month payment savings would also offer an additional $17,460 savings in interest even though the loan term is extended back to 30 years due to the lower rate and loan
Scenario 2: New 15-year loan to pay off loan sooner and reduce total interest paid
If you’re a Dave Ramsey fan, you might also be thinking about refinancing with a new 15-year fixed loan to pay off your home faster. This option may raise your monthly payment slightly, but will result in a greater long-term interest savings and will allow you to own your home free and clear much more quickly. This is a great option for people who are 15-20 years away from retirement.
Mortgage Balance. $183,000 to pay off estimated $180,000 loan balance and roll closing costs into the new loan
Interest Rate and Term. 3.375% on a 15-year fixed loan
Monthly Payment : $1297 (P&I) – approx. $1498/month “PITI” or total payment ($201/month estimated for taxes & insurance)
Total Interest Paid Over 15 Years. $51,684
Compared to the remaining interest due in the current 30-year scenario above ($159,813), that’s a savings of $108,129 in interest over the life of the loan ($600/month), and by paying just $98/month more on a new 15-year loan, you could have your home paid off in 15 years instead of over 23 years remaining in the above example. This would equate to a net gain of over $500/month in long-term savings.
An awful lot of us are having trouble dealing with rising grocery prices – ok, rising everything prices. Interest rates are probably the only thing that have decreased lately, so if you’re thinking the numbers above look awfully attractive, I would love to have you call Tim and Dave and see how much you could save by refinancing ! Naturally, they can also get you the same rates on home purchases as well.
You can call them at 719-266-8183 or visit their website . Don’t forget that if you mention Springs Bargains, they are offering a lender credit for your appraisal (up to $400 value) on any closed loan transaction
Powered by Academy Mortgage | Regulated by the Colorado Division of Real Estate | LMB 3113 LMB 100017529 NMLS 257308 | Equal Housing Opportunity