- “Sometimes we get fooled into thinking that small changes in interest rates aren’t worth the hassle of doing a refinance or a loan consolidation. Here’s an example to help you see how small changes in interest rates can make a huge difference over the life of a long-term loan. Let’s say you bought a $200,000 house with a 5 percent down payment. That means you put $10,000 down and mortgaged the remaining $190,000. If your loan is to be repaid over 30 years at a 6.75 percent fixed rate of interest, you’ll pay a whopping $253,641 just in interest! That doesn’t even include the $190,000 in principal you have to repay. If interest rates for 30-year fixed rate mortgages go down to 6 percent from your current rate of 6.75 percent, you may mistakenly think that the 0.75 percent difference isn’t worth the hassle. Let’s see… If you refinanced the loan for 30 years at the new interest rate of 6 percent, by comparison you’d pay $220,092 in interest. That’s a savings of $33,549 in interest over the life of a 30-year loan. I’d say that’s well worth the hassle, no? The “re-fi” would reduce your monthly payment from $1232 to $1139. Now you’d have just about $100 extra each month to pay down short-term debt.” Money Girl’s Smart Moves to Deal with Your Debt (Laura D. Adams) Kindle Location 220-30
- “Here’s a tip that works like magic to whittle down your principle balance faster and pay less interest on debt: make bi-weekly payments instead of monthly payments. Don’t believe me? Here’s a simple example to demonstrate how it works. If your monthly payment for your mortgage is $1,000, you’d make 12 payments a year, for a total of $12,000, right? But if you paid half of your payment, or $500 every other week, you’d make 26 payments in a year, for a total of $13,000. Consider my prior example of a $190,000 mortgage that was refinanced from 6.75 percent down to 4.5 percent, for a new monthly payment of $962. If you used the bi-weekly payment method and paid half that amount, or $481, every other week over the life of the loan, you’d reduce your interest expense from $156,572 to $128,984. That’s a serious savings of $27,588! Not to mention that you’d pay off the loan in less than 26 years instead of in 30 years.” Money Girl’s Smart Moves to Deal with Your Debt (Laura D. Adams) Kindle Location 251-58