Back to Blog
13 May

USING YOUR EQUITY TO SAVE MONEY – PART TWO!

General

Posted by: Tom Imrie

USING YOUR EQUITY TO SAVE MONEY – PART TWO!

REFINANCING

My last post was about the lower your loan to value percentage, the lower the interest rate available to you. This post is about refinancing (moving higher interest debt in to your mortgage). 

Refinancing is more of a proactive form of saving money. You will never pay less interest than you do on your mortgage, and homeowners take advantage of this by increasing their mortgage to pay down other more expensive debts. 

Example: 

John and Jill have a Home they purchased 8 years ago for 300,000. They took out a mortgage for 250,000. Their house is now worth 550,000. They now owe 191,000. They have recently done some renovations and went on a trip down south. They had some unexpected expenses as well, and their debt has increased recently. They are managing fine with their bills. They have 35,000 on an unsecured line of credit and 9,000 in credit card debts. They plan on paying off their line of credit and credit cards over 5 years. 

DEBT PAYMENT INTEREST PAID

191,000 Mortgage 1215.41 515.00 (3.5%)

35,000 LOC 691 108.06  (6.9%)

9000 CC 238 88.40 (19.99)

_____________________________________________________________

235,000 2144.41 711.46 

If they add their higher interest debt to their mortgage (I’ve also made the interest rate on the mortgage higher), Here is what the payments would look like:

237,000 REFI 1562.39 645 (3.69%)

(2000 added for 

Legal payment 

and appraisal)

_____________________________________________________________

Savings                       582.02/ month 66.40 / month

John and Jill will save $3984 in interest over the 5 year period, while paying 582.02 less monthly!

BUT I DON’T NEED TO REFINANCE. WE ARE DOING FINE RGHT NOW. 

John and Jill haven’t really considered this type of debt re-structuring, because they make good salaries and can easily pay their monthly bills. Secondly, they have set a goal to be mortgage free as soon as they can. This scenario works even better in these circumstances.

If they could afford 2144.41 / month, than they could have their entire mortgage paid off in 12 years. 5 years quicker than originally on track for. 

Refinanced over 17 years, you would pay 81,724.82 in interest. 

Reducing the amortization to 12 years would reduce the interest paid to $56,230.21

An additional savings of 25,494.61 in interest

Are you curious to know how much money you could save?

Contact me today!

tomimrie@dominionlending.ca

Tom Imrie
Mortgage Agent Lic # M1000486
Dominion Lending Centres Alliance
FSCO #12063
Independently Owned and Operated
Cell#416-818-7213
Toll Free 877-333-4983 ext. 702
Fax: 877-333-4983