I’m always surprised when clients are not interested in refinancing, and I think usually it’s because they don’t want to go through the paperwork hassle of closing a loan. Now, I work in the industry, and no one understands the painful process of documenting a loan better than loan officers and our loan processors. It’s literally the bane of our existence. However, I think if borrowers understood the huge financial savings and benefits, they would be more than willing to spend a couple of hours collecting documents and signing forms.
How much are the potential savings?
Well, obviously that depends on the change in the interest rate. Let’s assume the current loan of $300,000 has a rate of 4.25% and we are refinancing at a rate of 3.00% and there are 29 years left on the loan.
The monthly savings is $175. Not a big deal you say. Hardly worth getting out of my chair to go look for my last mortgage statement. My cable bill alone is $250 per month.
But remember, that is $175 every month for the next 348 months on a 29-year loan. In the first year, you will save $2,105, which pays for the cost of the refinancing of about $2,000. So, years 2 through 29 are pure gravy. And this savings is risk-free, guaranteed because no one can ever change the interest rate on your fixed-rate loan.
The ten-year savings is over $21,000! The savings on interest over the full 29 years is about $61,000!
You may say, yeah, but I won’t see that money for a long time. True, but we can figure out the “present value” of the savings. Present value is why bond traders get paid huge money on Wall Street. The estimated present value of $175 per month over 29 years is $40,740!! Let’s say you spend 3 hours on your refinancing. My only question is, when is the last time you got paid over $10,000 per hour risk-free? Maybe it’s time to get out of the chair, check your mortgage statement, and give your loan officer (hopefully me!) a call and see if you can be financially smart and save big bucks!
Feel free to email the author: dluczkow@rightkeymortgage.com