Refinancing your mortgage is a quick way to save extra cash through interest savings. You can also benefit from a lower payment as well, allowing to save more money each month.
How much can refinancing really save you?
Your savings could be ten of thousands of dollars throughout the life of your loan. Here’s a simple comparison I did with Zillow’s Refinance Calculator.
My wife and I bought our home in 2018 for $256k on a 15 Year Loan at a 4.25% interest rate, we put 20% down to avoid PMI- our initial mortgage loan amount was 205,600.
In 2019, the credit union we had the mortgage with had a lower rate available (3.125%), low refinancing fees, and a $1,000 cash back offer if we signed up for a checking account and credit card.
This was a no brainer for us. Our shiny, new mortgage loan was $199,500.
By refinancing, we saved $27,000 over the life of the loan and it dropped our monthly payment $200 (although the mortgage will now be paid off in 2034 instead of 2033).
With record low mortgage rates, refinancing can save you a lot of money – just look at what lowering our rate by just 1.125% saved us.
The $200/month we saved by having the lower payment has been going to our higher interest debt- credit cards and student loans.
Once we are out of debt, we will be investing the extra $200 each month.
$200 is not a lot of money, but in the grand scheme of things will help us get to Financial Independence sooner.
To me, $27k is a lot of money. Saving this over the 15 year period, plus being able to invest the extra $200 per month will have an even bigger return.
Since our interest rate is so low, we will make more on investments than repaying the mortgage.