In 2009, I refinanced my home down to an interest rate of 5 percent. In the meantime, mortgage rates dropped further, and I decided to refinance again. Within four weeks, I lowered my monthly mortgage payment by $400 a month, savings that fall just short of $5,000 a year. I also pulled out $31,000 in equity and paid off my credit card debts, saving me another $525 in monthly payments. I now have $925 more a month to spend on other things. Here's what I did to maximize my savings.
Found the best lender. I conducted online research and compared loan interest rates, loan origination fees, and closing costs. I selected the best two (both credit unions) that had no origination fees and gave customer service a call.
Prepared beforehand. I obtained my f ree credit report fr om all three credit bureaus and purchased my credit score for a nominal fee. When I called the credit unions, I provided the loan officers with my credit score and inquired after the loan terms I would qualify for. I then made a single application with the best lender.
Calculated my loan terms. My original loan was for $417,000, with a term of 360 months at 5 percent interest. Instead of refinancing to another 30-year fixed loan, I switched to a 40-year fixed loan that would maximize my monthly savings.
My new loan was for about $408,700, with a term of 480 months and an interest rate of 4.5 percent. This meant that my total financing costs rose from about $410,000 to $475,000, a nearly $65,000 increase in my total interest payments. But it also meant that I will now pay approximately $190,700 less in payments over the 40-year loan term.
Paid off debt. Pulling out $31,000 in equity, I was able to pay off my credit card debts and reduce my monthly payments by another $525, which I was sending to my creditors.
And now? we're enjoying our savings. Having $925 more a month to spend on my family has made a big difference to us. We now have money to eat out more, stream movies online, and go on weekend trips. Our quality of life has risen without costing us anything out-of-pocket.
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