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Investing funds from where they might otherwise be earning a lesser rate of return into your home's equity to enable the ability to
refinance can prove to be a highly beneficial move. Below are comparisons of your current loan balance, term, rate and payments vs.
up to four proposed alternatives with the costs and benefits fully illustrated:
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Payment and Savings Comparisons:
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While often different from the actual "net" benefit due to varying amounts of principal and interest paid, the monthly payment savings
is a good place to start. For many, this can be the most important factor as immediate household cash flow improvement can make the
difference between being able to keep a home, making ends meet or even facilitating other investment or savings.
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The Grand Total Payment indicated here is the total of your existing payment(s) with principal, interest, taxes, insurance, MI/PMI
and any extra amount as a pre-payment towards the principal. These figures are based on your current financing and new factors selected.
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Total Payments and Costs over the number of years selected:
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Loan Balance Comparisons:
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Depending on the age of your current loan, refinancing with a lower rate can speed the reduction of your loan balance. As well, using your
interest savings to pre-pay principal will accelerate the process even further. Whether you choose to use or invest your savings elsewhere
or to pay off your loan sooner, refinancing can be one of the most beneficial investment opportunities that you can ever take advantage of.
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Total Cost and Break-Even Comparisons:
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Closing Costs and any Penalty Paid on Withdrawal of the funds to pay down your principal are shown here along with the number of months
it takes to break-even or earn back the value of the costs by way of the monthly payment savings
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Rate of Return on Total Costs:
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It's not uncommon for the average annual rate of return on your closing costs to reach amazing levels. This demonstrates the power of
leverage at it's best and evidences that refinancing can be the best guaranteed investment available.
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Rate of Return on Cash Used:
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Note, the net benefit figures here exclude the lost opportunity and gains on payment savings so you can compare the total
gross rate of return on your total cash used vs. what those funds may be earning currently.
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The Net Benefit of Refinancing:
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To determine the bottom line "Net Benefit of Refinancing" we subtract the "Net Cost" of the current financing from the "Net Cost" of
the new financing options. You can see the results of this below:
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| Adjust Factors to See Changes to Results: |
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| BOTTOM LINE REVIEW |
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Here are the most important elements boiled down to the simplest view possible. These reflect only what you actually spend, the amount
that your payment changes by each month and then taking all of the much more detailed analysis above into account, the actual net benefit
of refinancing over the number of years selected.
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Not everyone likes the idea of having to pay down their loan balance in order to be able to refinance, yet, if you do find yourself in that
position and have the resources to be able to do so, the rate of return that can be realized on those funds can be pretty healthy. It's typically
best to assess the current and future prospective returns on that money and then compare that to the numbers here. If the rates of return
are favorable or even if only close, keep in mind that a fixed rate loan will not change and is therefore not subject to market fluctuation
while most investments are. In other words, locking in a lower payment for a guaranteed rate of return while still being able to use those
savings each month to invest elsewhere to capture the possibility of future rising investment returns can be safe and secure today, while
still leaving even better opportunities open for tomorrow.
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