Although Mortgage
interest rates are at their lowest in 30 years, refinancing your
home should only be done if the numbers make sense. Too many
home owners and businesspersons are under the impression that the
only time to refinance is when interest rates are simply "2%
lower".
This old "rule-of-thumb"
is an over-simplified answer to a question that requires a thorough
analysis by a competent professional. Oftentimes, even a small
reduction in interest rates will prove highly beneficial.
When combined with personal and business debt, a refinancing option
not only makes sense, it can literally save you a couple of HUNDRED
THOUSAND dollars!
When a small
business owner considers refinancing, the total household's business
cash flow and equity position should be analyzed. Each item
of income and expense for the business and for the owner personally
should be combined on one statement. This "before"
analysis will determine the total amount of money being spent each
month.
A competent
mortgage planner can then help determine an "after" analysis,
restructuring the total debt into one or two LOWER monthly
payments. A comprehensive plan and appropriate mortgage
program can usually free hundreds of dollars per month.
This money
can then be reinvested as principal into the fixed rate mortgage
to drastically reduce the term of the loan. The small
businessperson can payoff all company debt using his home as equity
and then structure a loan from the company back to the owner.
(Obviously there are many factors to consider, so you should check
your particular situation with a professional mortgage planner.)
The following
example will illustrate the potential cost savings of the Purchase
Power Plan:
"Before"
Analysis (assume the following facts):
Home Mortgage
(15 years remaining) = $100,000 with a $1,450 monthly payment
Vehicle
Loan = $12,500 with a $425 monthly payment
Business
Debt (7 years remaining) = $50,000 with a $1,050 monthly payment
Total
Debt = $162,500 with a monthly payment of $2,925
"After"
Analysis (assume a Cash-Out Refinance)
New Home
Mortgage (15 Year, 7% Rate) = $175,000 with a total new monthly
payment of $1,572
All debt
(vehicle and business loans) have been paid in full
You continue
to pay-off the mortgage at your PREVIOUS monthly payment
of $2,925 and;
Your
home is completely paid off in 6.15 years and you've managed
to save $153,990 of interest costs!
Households who
pay their bills on time and who usually have one mortgage payment
are the best candidates for the Purchase Power Plan. Oftentimes
many of my refinance candidates aren't even aware of the fact that
they may be able to save 15 to 20 years on their mortgage and hundreds
of thousands of dollars in interest payments.
(This scenario
only works, however, if the debt is refinanced and if the resulting
cash flow is re-directed back toward the additional principle.)
Usually there
are no "out-of-pocket" costs to refinance your home except
for an appraisal. Nonetheless, it does cost money to refinance.
This cost, however, can be added to your new mortgage amount.
The mortgage lender is required to provide and disclose a Good
Faith Estimate before you close on your loan within 3 days after
mortgage application.
If the money
and time saved outweighs the cost to refinance, then and only then,
should someone refinance or "tune up" their household
and business debt.
The example
above shows a person being totally debt free in less than 6.5 years
and saving over $153,000 simply by restructuring their debt!
As a small businessperson,
you owe it to yourself to have a professional mortgage analysis
done, so you can see for yourself just how many thousands of dollars
you can save.
Stephen Argen
is CEO of North Atlantic Mortgage Corp.
He has over 16 years of real estate finance experience and has helped
hundreds of people save thousands of dollars. He may be reached
at 1-800-784-9088 or by visiting his website at www.NorthAtlanticMTG.com
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