How Much Interest Can You Save With a 25 or 20 Year Fixed Mortgage?
The traditional, conservative, “go to” loans have always been the 30 year and 15 year fixed rate. Few people are aware there are other great options as well – the 25 year and the 20 year fixed. With these shorter terms, you can save thousands of dollars in interest and pay off your home faster.
Dan and Sue bought their home five years ago. They came to me recently because they heard a news report that interest rates were at an all-time low. They are paying 6.00% now and wanted to know if there was any way they could capture these lower rates for their mortgage. “Yes, there is!” I replied. Dan and Sue wanted to look at a 30 year fixed rate because they thought the payment on the 15 year would be too steep for their budget. I recommended we also look at the 25 and 20 year term – two loans they did not know existed.
Let’s take a look at the numbers to see how much money Dan and Sue can save by refinancing their mortgage to a lower rate and shorter term.
Current Loan
Interest Rate 6.00%
Original Loan Amount $175,000
Current Loan Balance $162,000
Monthly Payment $1,049
New 25 Year Loan
Interest Rate 4.25%
New Loan Amount $165,000
Monthly Payment $894
Monthly Savings $155
Interest Savings over 5 Years $13,540
New 20 Year Loan
Interest Rate 4.25%
New Loan Amount $165,000
Monthly Payment $1,022
Monthly Savings $27
Interest Savings over 5 Years $48,600
After looking at the numbers and discussing their options, Dan and Sue decided to proceed with the 20 year term. Their monthly payment is approximately the same as what they pay now, and they can shave another five years off of the financing, thus saving a pile of money in the long run. That was a great decision for their budget and their family!
Do you have a refinance story to share? I would love to hear how you saved money by refinancing.
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