Refinancing Done Right: When A Mortgage Re-Do Generates Big Savings

Rates are lower than ever, so we’ve been helping several clients explore mortgage refinancing options.

When a refinancing is done right, it can save you thousands of dollars. But not every potential refi makes the cut. Sometimes the expenses just don’t justify the potential savings.

But the refi that closed last week for our clients living in Miami really won the refinancing trifecta.

It helped them lower their mortgage interest rate, pay off their mortgage years earlier, and save thousands in interest over the life of the loan.

Here’s what made this particular refi a winner, and what you should look for to see if you’re a good candidate for savings on a new mortgage.

A shorter mortgage maturity. This couple was able to shave 7 years off their mortgage by refinancing from a 30-year mortgage with 22 years remaining, to a shorter, 15-year mortgage maturing in 2035.

Refinancing to a shorter mortgage isn’t always a slam-dunk. Sometimes shorter 15-year mortgages can result in monthly payments that are just too steep (after all, you’re paying off the entire mortgage balance in 15 years instead of 30). In this case, however, moving to a 15-year mortgage hiked the payment by only $70 per month, which fit easily within our couple’s budget.

A fantastic new mortgage interest rate. The couple’s previous 30-year mortgage was at an already attractive rate of 3.875%. But the opportunity to snag a new 15-year rate of 2.5% was too good to pass up. Refinancing at a lower interest rate lets you shave money off of your payment every month, or keep the payment roughly equal but shorten the payoff period.

Bottom line savings. Here’s where it all comes together, as those savings flow through to your bottom line. Reducing the interest rate and shortening the years to maturity slashes total interest costs over the life of the loan by $70,000.

That’s money these homeowners can use to boost their retirement savings or add to college accounts for the kids, both important goals in their overall financial plan. We were happy to help get them closer to the finish line.

The Takeaway: You can save serious money by refinancing your mortgage. But due to refinancing fees and expenses, not every refi makes financial sense. Ask your financial advisor to run the numbers for you to see if you should take advantage of today’s amazing low rates.

 

Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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