I received a few suggestions that perhaps I need to take the 5 steps I laid out in yesterday’s post and provide a specific example where I was able to save money and reduce my annual recurring costs. Hopefully this example helps. (In very simple, non-technical form)
Let’s take my mortgage for example. Given the recent lower mortgage rates, I was looking into refinancing my 30 year to a 15 year to 1) Pay off my mortgage quicker and 2) Pay a lower monthly mortgage than currently.
The first step I took was to work with my current bank to see what rates and closing costs they were able to provide me. From my experience, working with the same bank as your current loan should yield the most savings, but sometimes you may be able to find another bank with lower closing costs.
The second step is to compare what you have been offered by the various banks. The trick here is that mortgage rates are always changing, so you’ll have to do most of your research in one day and conduct your analysis immediately to lock in the rate. Now if you’re like me and like to gamble with even lower rates in the coming days, you can always just wait it out and do your research over the course of a week or 2. The only risk there is that the rates will increase, thus payments will increase, and you end up saving less in the long run. Closing costs pretty much stay the same and are always negotiable.
The third step, is to then lock in the rate with the bank of your choice. Based on your comparative analysis in the second step, you should have an idea of which bank will offer you the best rate / monthly payment at the lowest closing costs. Let’s focus on the closing costs for a moment here. Even though from your comparative analysis it shows that the closing costs for one bank is higher than the other, doesn’t mean you can’t go after and lower those closing costs. Always do a line by line review of the final costs that the bank will provide to you. ALL COSTS ARE NEGOTIABLE. Remember that with a mortgage you are initially paying off your interest first, and then your principal. So essentially, they are getting your money upfront and for the next several years. You might as well try to lower your initial costs so you can keep more in your pocket and not theirs!
The fourth step, is to now put away the additional savings you have each month from your lowered mortgage rate. Depending on the amount of your closing costs and how much you have lowered your monthly mortgage, it may take you several months to pay off the initial closing costs. However, after the break even point, all that is reduced in your monthly mortgage is saved into your pocket! Simple.
The fifth step, if you wish to do is to take some of that savings from your lowered monthly mortgage and use it towards your principal. Doesn’t have to be much, $50-$100. But it adds up and helps you pay off our mortgage quicker and become a TRUE homeowner sooner!
Again, I welcome any feedback on this. As this was my own experience I would love to hear others! Also, please correct me if any of my content is incorrect or doesn’t make any sense to you. This is just my forum to discuss anything and everything on my mind…and right now its savings!
Cheers.