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Thinking about refinancing your mortgage? If you’re like a lot of homeowners, you start eyeing this option when interest rates dip or your finances shift.
Refinancing can save you money by lowering your monthly payments, shortening your loan term, or sometimes both. That can add up to thousands in savings over the life of your mortgage. The main way you save is by locking in a lower interest rate, which cuts down the total interest you pay.
But not everyone benefits from refinancing. You’ll face closing costs and fees—usually somewhere between 2% and 5% of your loan amount. To figure out if it’s worth it, you need to calculate your break-even point. That’s when your monthly savings finally outweigh what you paid to refinance.
How Refinancing Can Impact Your Mortgage Savings
When you time it right and have a solid plan, refinancing can seriously boost your finances. The potential savings over your loan’s lifetime are nothing to sneeze at.
Interest Rate Reduction and Monthly Payment Adjustments
Lowering your interest rate is probably the most obvious way to save money through refinancing. Even dropping your rate by just 1% can make a noticeable difference in your monthly payment. For instance, if you have a $300,000 mortgage and drop from 5% to 4%, you’d save about $167 a month—or over $2,000 a year.
Stick with that loan for the long haul, and the savings only grow. Over 30 years, that 1% reduction could keep more than $60,000 in your pocket instead of the bank’s. Most experts say it’s worth considering refinancing if you can snag a rate at least 0.5% to 0.75% lower than your current one. Of course, it depends on your loan size and how long you plan to stick around.
Shortening the Loan Term for Long-Term Savings
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