Congratulations! You have benefited from record-low interest rates and refinanced your mortgage. By now, you probably see a boost to your personal finances every month in the form of additional savings. But consumers should skip spending and instead focus on how to make those extra pennies work both smarter and harder.
When mortgage rates are as low as they are now, there are few downsides to refinancing. If you analyze the figures through Credible’s free online tools, you can see for yourself the possible savings.
In case you’re wondering if it’s worth going through the mortgage refinancing process, the advantages far outweigh the disadvantages. Refinancing not only lowers your monthly payment, but you can also refinance your loan to a shorter term (if you wish), and build equity faster.
4 Money Moves to Deal With Your Refinance Savings
Once you’ve gotten the lower rate and taken out your refinance loan, here’s what to do with the extra money you’ve just earned back.
- Pay off your mortgage faster
- Pay off other debts
- Contribute to retirement
- Save emergencies
If you haven’t refinanced your mortgage yet, you should compare the rates and get started with the application process now. Don’t leave money on the table! Fill out some online forms and see how much you can save today.
1. Pay off your mortgage faster
If your “team pays as little interest as possible,” it’s best to use your mortgage refinancing savings to pay off the mortgage as quickly as possible.
To illustrate this, for someone who has realized $ 300 in monthly savings, depositing this additional amount towards a $ 300,000 mortgage at a 3% interest rate every month for 8 years and 2 months off a loan of Shaving for 30 years.
Even if you prefer to keep the extra money in the budget monthly, even one extra payment per year can be significant shortens the repayment period of your mortgage. By contributing $ 1,200 more dollars per year, you shave three years off the payout timeline and save $ 20,000 in interest over the life of the loan.
2. Pay off other debts
If you have high-interest debt, other ongoing debt, or student loan debt, you must allocate the additional savings from the mortgage refinancing to reducing your overall indebtedness. After all, the less you owe and the faster you pay it off, the less you’ll pay in interest over time.
Let’s say a homeowner makes $ 200 in additional savings from a mortgage refinance, but has $ 17,000 in credit card debt. By adding $ 200 on top of the minimum payments, this homeowner could pay off all of his credit card debt in about six years. Without the additional payments, it would take more than ten years to pay off this amount.
If those mortgage refinancing savings have already been allocated, debt consolidation is still an option when you’re struggling. And there is good news: borrowers can shop too debt consolidation loans and student loan refinancing options via Credible and easily compare rates and lenders.
3. Contribute to retirement
In the heat of the COVID-19 pandemic, it can be difficult to imagine the distant future or even the months ahead. But eventually the pandemic will be over and you will still need an income to live on when you retire.
Using a compound interest calculator, even if you contributed zero dollars in your 20s and 30s, $ 250 in mortgage refinancing savings contributed monthly at an average annualized return of 7% on your retirement accounts will yield $ 284,000 over 30 years.
The lesson? It’s never too late to start, especially when it comes to something as expensive as funding years after retirement.
4. Save emergencies
If the pandemic taught Americans one thing, it is to expect the unexpected.
With COVID-19 numbers continuing to rise nearly nine months later, it’s never a bad idea to fill up the savings account. Here are just a handful of “just in case” scenarios to save up for:
- At least a year of living expenses.
- One percent of your home’s total value for repairs and annual maintenance.
- The amount of your health insurance is deductible (so you don’t have to sweat financially in a major medical emergency.)
- An emergency fund for every family dog.
Even when it comes to savings accounts, consumers should still look at multiple options as not all financial institutions offer the same rate. However much you have to deposit, you can save more with a high-yield savings account (as opposed to a more traditional savings account). Here’s how to research Credible’s high yield options.
As you can see, saving more money by refinancing your mortgage is just the beginning. Borrowers will only be able to know exactly how much they can save when they start to review the interest options. To reduce the hassle of rate shopping, consumers should visit Credible where they can view loan options from multiple lenders in minutes, and with fewer forms to fill out.