That's right, you can save THOUSANDS of dollars. I know, sounds impossible and you are waiting for the punchline or for me to tell you to invest in something that will have huge gains. Nope! That's not my job, but I am sure there are plenty of posts and/or infomercials that will take care of that for me.
This post was sparked from phone calls I received from new and previous customers. Yes it is true that rates are still at an all time low. But does that mean you need to refinance? Well, that is not always the case. What?? A mortgage consultant telling you it may not make sense for you to refinance? Yes and No. When I am talking with someone about refinancing, I look at many different aspects. Obviously we are going to talk about credit so we can assess your current situation. This post is not about Credit though. If you need to review your credit though, take a look at my previous post which talks about getting a free credit report.
When I consider someone for a refinance, I look at their current loan balance, the term they want compared to how much time they have left, and their credit score. Right now, more than ever, your credit score is a major driver of what interest rate you will receive. So, let's look at a scenario where you can save yourself some thousands of dollars without refinancing.
It may not be possible for you to increase your monthly mortgage payment due to current cash-flow, but if you can that will obviously help. Most mortgages permit you to make additional payments to your principal at anytime. Perhaps you receive a larger than expected tax return, or an inheritance, or a non-taxable cash gift. You could apply this money towards your loan's principal, resulting in significant savings and a shorter loan life.
Let's use the following example:
- Loan Balance $100,000
- 30 year fixed rate
- Current rate 6.5%
In this scenario, the borrower would pay a total of $227,542.98. This is the total of all payments made over the next 30 years. That equals $127,542.98 in interest payments. I know that is a crazy number (for reference, this number can be found on your Truth In Lending Statement).
If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). This shaves off 36 months of payments with a savings of $22,832.23 in interest. Paying a principal reduction in year 6 means nothing, except it worked into my scenario nicely. You may make a principal reduction in year 2 or year 12. The point is to make the principal reduction and you are guaranteed to save on interest.
So... what are you going to do with YOUR tax return this year? 
If your principal balance is over $150,000 and you are paying over 6% on your mortgage, you should call your local mortgage consultant. It costs nothing to find out what options are available to you (in most cases) and could save you a ton of money.
You are also welcome to visit my website www.TXMortgageConsultant.com and use the mortgage and budget calculators to see your own savings scenario. No sign-up required and no one will follow-up with a phone call. It is set up for your use only. If you live in Frisco Texas or the surrounding areas, give me a call and I'll be happy to do some comparisons for you.
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