# Turn your mortgage payment into huge savings

January 18th, 2011

If you could turn your \$1460 per month mortgage payment into \$50,000 would you do it? Several million Americans have chosen not to make this conversion in the past few years, will you? Using a refinance calculator to determine your monthly savings with a mortgage refinance is standard practice. But using other mortgage calculators shows how you can double your savings with a refinance mortgage.

Standard calculation

Assume that you have a 30 year fixed rate mortgage of \$250,000 with an interest rate of 5.75% with a payment of \$1460 per month that you still have not gotten around to refinancing. With rates having climbed since early November and then slipped down slightly the last few weeks you are using a refinance calculator to determine your monthly savings.

If you are able to refinance \$250,000 at 4.75% for a 30 year fixed rate mortgage you will find your new mortgage payment will be approximately \$1300 per month, a savings of \$160 per month. If you have 27 years left on your mortgage refinancing under these terms would save you approximately \$5,000 over the life of your mortgage. \$5000? That's all? Yes, when you factor in the three additional years on your mortgage:

\$160 per month x 324 months (27 years x 12 months per year) = \$51,840

Less the three extra years you have added to your mortgage = \$1300 per month x 36 months = \$46,800

Total savings after 30 years is \$5040.

If you are planning on staying in your home less than 27 years then you will save \$160 per month from the date your refinance mortgage closes until you sell your home. If you sell right at 27 years you will maximize the return on your refinance and save a total of \$51,840.

As can be seen by the above calculation, if you intend on staying in your home for more than 30 years, reducing your mortgage interest rate by 1 percent does not bring a whole lot of value in the long run as the final three years of your mortgage will almost wipe out your monthly savings. What if you could increase your total savings and not have to sell your home?

Using the early payoff calculator to show how you can cut seven years off your mortgage payments, just by keeping your current mortgage payment the same. Input your \$250,000 mortgage for a 30 year term, your refinance mortgage rate of 4.75% and a new term of 24 years. You will see your new mortgage payment is \$1456 per month, almost identical to what your current mortgage payment is without the refinance.

By lowering your mortgage rate 1 percent and keeping your payment the same you will eliminate over three years on your mortgage, a savings of \$52,560 (\$1460 per month x 36 months you will not be making a mortgage payment).

If you are saving over 1% on your mortgage your savings will be even greater as you will be paying off your mortgage even sooner.

Many Americans have readjusted their priorities in the past few years. Homeowners across the country are starting to determine how they can pay-off their home mortgages sooner and reduce their mortgage interest expenses. Using the available mortgage calculators you can see how much more money you can save in the long-term by transferring monthly mortgage payments savings into principal reduction payments.

The choice is yours, refinance your existing mortgage and lower your monthly payments, or use the savings to reduce your mortgage balance so when you are closer to retirement you own your home free and clear at no additional monthly expense.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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