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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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