065. Refinancing to a 15-year Loan is Taking Trend

Hello everybody and welcome to another episode of the Reside Daily Bite; I’m your host, David Doucette and today, I want to talk to you about a trend that was reported in the New York Times recently about Refinancing into Shorter Loans and their saying homeowners  are starting to do that and it is becoming more of a trend. And the Gold Standard has always been a 30-year fixed loan. What we’re seeing with refinancing is people are refinancing into a 15-year loan. So, what that means is less time to pay-off their home; it’s going to be higher monthly payments but a lot more of your monthly payment is actually going to go towards the principal on the loan rather than the interest.

And I went to my trusted source on the internet, BankRate.com and they have a comparison chart that you can go and plug in. So, I plugged in for just a $500,000 loan. Today’s interest rate is 3.625% per 15 year and the 30 year is 4.25%; so the 15 year is typically going to run about half a point lower than the 30 year. But your monthly payment on a $500,000 loan (this is just the mortgage itself) is about $3,600; on a 30 year loan, it will be about $2,500. So $3,600 and $2,500; a difference of about $1,100 a month.

So, what that means is (this is where we see the big numbers), total payments are $649,000 on a 15 year loan and on a 30 year loan, $885,000. So, $885,000 up here and $649,000 here. It’s really about $240,000 difference between the 15 year loan and the 30 year loan…so, very interesting.

And what the article says is the people that are doing this are the ones who can afford to do it -typically ones that are making more than $250,000 a year, obviously. It’s going to depend on what area you live in but they’re also saying the people who are doing it are the ones who are pretty secure in their lifestyle and pretty set with the home that they’re in.

And so, I think it’s a great option if you can afford to do it or if you know somebody that can afford to do it. You can save on a $500,000 mortgage. You can save $240,000 over the life of that loan. Plus, in a 15 year loan, it’s now paid off in 15 years which can now free up some money to send 2 boys to college, which is something that I’ll have to be thinking about in about 15 to 16 years.

So, that’s going to do it for me today, I want to thank you so much for checking out the Reside Daily Bite.

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