Lower Your Rate

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Lowering interest rate and loan term

Another benefit to refinance is to lower the interest rate and lower the loan term. By obtaining lower interest rates, you will be lowering your mortgage payments. In some situations where the mortgage payment reduces vastly, home owners are able to reduce their loan term at the same time, keeping their mortgage payments very reasonable.

By lowering the monthly principal and interest payment, you are in a situation to add the savings to your payment, which goes directly to principal. Mortgages are fully amortized which means that payments are both interest and principal. Any payment that is extra from the minimum amount due, goes directly into principal, which will help you pay the loan off faster and save you thousands of dollars in interest.

Examples

People have a tendency to focus only on the rate. Sometimes rate is not the only issue. Time is the other key factor. It costs exactly the same to pay back a 30 year loan at 5% interest as it does to pay back a 5 year loan at 30% interest. A smart borrower will understand this. Every situation has its own needs and interest.

Example 1:

For example on an $80,000 loan at 12% for 30 years, the monthly principal and interest payment is $822. By adding a dollar extra a day, you will be able to pay the loan off faster and save thousands of dollars in interest. If you were to add $31 on top of the monthly mortgage payment, you would pay this loan off 7 years faster and save $58,828 dollars in interest. A dollar a day in time has over 5 times more impact than a dollar a day in rate.

Example 2:

Bob is a 30 year old homeowner. He currently has a loan amount of $100,000 at 9% interest for 30 years, the monthly principal and interest payment is $804.62. Bob can pay this loan off faster and save thousands of dollars in interest by being able to save on his monthly payments. By doing debt consolidations, he is able to add $95.11 extra to the monthly mortgage payment. By adding the extra money to the principal every month, he will pay the loan off 10 years faster and save $73,728.94 in interest. At the age of 50, Bob will have his home paid off and now he can invest his $804.62 monthly mortgage payment into a savings account.

Source: Interest Rate & Loan Term at www.MyMortgageHomeLoan.com


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