Guest Post

Refinancing your Home Loan when it makes the Most Sense

Whenever your life is changed by a major event, it is important to determine what it will affect.  For instance, an upcoming home renovation or the prospect of an investment property could be indicators to refinance your home loan if interest rates have dropped.  If you review your mortgage regularly and perform a home loan comparison, you’ll know when refinancing could be a great idea for you.

Long Term Savings

Refinancing your home makes a huge impact on the overall cost of a home.  For example, a $200,000 loan for 30 years at 5.5% would cost $408,808 over the 30 year term.  But if that loan was refinanced 15 years in at 4.5% for the remaining 15 years, the overall cost of the home would drop to $387,440.  That’s more than $21,000 in savings minus the cost of the refinance without ever paying additional principal to the loan.  $21,000 could be used for something as big as a down payment on an investment property.

On a side note, the same family could easily save tens of thousands more if they paid additional principal the entire time.  Additional principal payments can be the key to shaving years off of a home loan and can save you tens of thousands of dollars.

Short Term Savings

Home refinancing seems like a major hassle, so people tend to concentrate on it only to save tens of thousands over time.  But if you can refinance at a significantly lower interest rate, you can save real money each month right off the bat.  In the example above, refinancing the remaining $133,000 after being 15 years into the loan dropped the $1135 payment to about $1020.  That an extra $115 every month could be put aside for short term savings goals like a home renovation or anything else that floats your boat.

On another side note, that monthly extra could also be diverted towards principal reduction.  That would lead to shaving months or years off of the end of the loan.

In short, home refinancing is always a good idea if you can get a significantly lower interest rate and if you have enough principal left for the refinance to be worth the closing costs.  A great refinance helps you whether you are looking at the short term or long term savings benefits.

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Comments (2)

  • I just refinanced my primary residence last month, and am doing my rental this month. Gotta take advantage!

    Best, Sam

    Reply
  • Interesting… great post and I really never thought of refinancing your home loan will save you so much. Very good advice for those who already have their home loans working.

    Reply

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