Should You Refinance Your 30-Year Mortgage To A 15-Year Mortgage Or Just Send In Extra Payments?

so does refinancing your 30-year mortgage into a 15-year mortgage actually save you money okay obviously we're talking about buying a new house getting a 30 vs. of 15 yes it will save you money but I'm talking about refinancing you have a 30-year mortgage you've been working on that for a few years and now the bank's trying to get you to refinance into a 15-year loan telling you that it will save you money is that true okay we're gonna break those numbers down in today's training hey everyone it's Mike Adamson on this channel we empower individuals to achieve freedom to improve financial literacy if you are new to the channel make sure to click subscribe and click the bell so that way you get notified on any and all of our future trainings so in today's video we're gonna be talking about does it make sense and does it save you money to refinance that 30-year mortgage zeroes in and again this is a mortgage that you've been working on for a few years you've been living in this house and now the bank's trying to get you to refi into a 15-year mortgage you know it doesn't actually make sense for you to do this and does it actually save you money on interest which is the number one thing you know if you've seen other videos on this channel obviously we like to save that money that's just interest going right to the banks we want to keep that for ourselves to pay off your debt and start building wealth so anything that will allow us to pay less in interest is it's something that we typically like a lot so you know it doesn't make sense of a goal from your 30-year into a 15-year and do that refinance you know it's a very popular topic now on every bank that's out there is trying to you know and if you're on facebook if you're on Google anywhere you're probably seeing the little ads over there like everyone's saying you know refinance it to that 15 years so you can save money right and somehow this is gonna save you money so I wanted to break those numbers down it's it's a great question that we received from one of our subscribers here on the channel and so does it actually make sense to do that refinance into a fifteen year or is there a better way or is there a better way to eliminate and pay off that debt so what I want to do is I really want to show the numbers and so what we're gonna do is we're gonna bust out our trusty loan calculator here and we're gonna use some standard numbers and you know let's want to create a scenario here and so using numbers that we've seen before you know an interest rates are a little bit lower than less let's let's go to a four let's say this individual had a four percent interest rate on their $200,000 property so this was a $200,000 house 20 percent down and they had a mortgage of $200,000 right at 4% and they've been working on this it's a 30-year mortgage and what we want to do is typically people are gonna refinance the average person refinances or looks into getting a refinance at about the five six year mark okay as well a little shortly after five years so what we want to do and let's say this is you right let's say this is your mortgage and you've been living in this property for five years now and then you get that letter in the mail or you get that call from the bank saying hey it is time you know you know right now you got 25 years left on this mortgage you know you can stay there or right we can knock your interest rate down by let's say you and really it's between anywhere from point two five up to at one point but if you're already at a four and I'm not sure if you can even get you'd have to have really good credit to get below three point five now so let's say they're gonna knock off half a point okay but then move you into a 15-year loan okay and so does that save you money and does it actually make sense to do it so let's run the numbers on this and see how it goes and and at the end of this you'll be able to see for yourself if it makes sense you know do the numbers actually make sense for you to make this move a refinance or is there a better approach okay let's say again we're at that five-year mark where people the average person is refinancing okay he's after five years and what do we know about loans okay what we know about loans is that on the front end of the loan okay is when the highest percentage of your payment is going directly to the bank and interest and we can see that here with our loan on payment number one we're sending in 954 and only 288 of that is actual principal okay we got 666 is pure interest going right to the bank okay so if we fast forward here okay we're going to go to year five that's when we're gonna that's when we're gonna do this refinance and so let's go up to the sixty month okay and we're gonna track these numbers here and see if it makes sense okay so here's month 60 okay and so over the life of the loan you can see life of the loan interest right here based on the current numbers right based on these numbers okay over 30 years of this loan you'd pay about one hundred forty three seven in interest right to the bank okay and after year five you have already paid over thirty eight thousand dollars worth of interest okay so at this point we're gonna jump into a 15-year refinance you got that call from the bank and they're like hey you know let's let's get you moved over into a fifteen year because when you're standing here it's like hey you got 25 years left to pay on this loan okay and you're gonna pay another hundred grand worth of interest let's get you over into a fifteen year and from there you know you be able to pay it off sooner which is technically true you know if you jumped into a 15-year from where you're at in the 25 25 years left you go to a fifteen yes you're going to pay it off sooner but does that mean you're gonna pay less total interest okay so remember this number here and we'll I'll write it down somewhere for you guys you know I don't remember it but looks like we would pay one hundred forty three seven on this particular loan so we've already paid thirty eight one and now we're gonna come in with our refinance so let's track our numbers here okay so we're gonna bring these numbers over to a data sheet just that way at the end of this we'll be able to see a straight line comparison so let's jump over there real quick and so our starting balance on the original almost two hundred thousand and the current balance here is gonna be after five years are you making payments and again this is where you've eaten the heaviest portion of interest you know percentage-wise we got one eight zero eight nine five after five years bang months 60 yes so okay one eight zero eight nine five let's stick that up there okay we're just gonna round this to make it easy our interest rate was 4% okay $4 so let's change that to 4% and let's make sure that that's not a currency let's change that oh that's true so they're 4% okay okay and our monthly payment was 954 83 okay and at the time of the refinance we have paid thirty eight thousand 184 dollars in 86 cents in interest so three eight one eight four eight six three eight one eight four eighty six kind of so much interest we've paid and so there we go right so now we're going to be moving into air basically now we're gonna be doing a refinance into a 15-year mortgage okay so the new balance on the new loan okay is gonna be this right so one hundred and eighty thousand eight hundred ninety five dollars okay but is that all that's gonna be into this new balance the answer is no okay cuz the bottom line is there are going to be some closing costs here okay and the bottom line is you know whether these costs are going to be paid out of pocket or rolled into the loan it's a fee nonetheless I mean the bottom line is there's gonna be an appraisal there's gonna be document fees there's gonna be title fees there's gonna be all kinds of fees going on with the origination of any loan some of them will be junk fees so the bottom line is these are these are just fees that you pay without necessarily adding a value or adding benefit to you the consumer but they're fees that are just paid in order for you to get this new loan okay and typically you're gonna be looking anywhere from two to four percent of the amount borrowed as far as like an estimate you know as a ballpark for yourself two to four percent again depending on the lender so what will you is we'll use a three percent as our as you know let's keep it right in the middle so we use three percent so we'll take this one eight zero eight nine five we'll pop it in here okay and then we are going to time you get three percent so times point zero three equals five thousand four hundred and twenty six dollars and 85 cents in closing cost so I'm taking my grandma so five four to six point eight five five four to six point eight five okay so our actual loan and actually let me create a row here so new loan so let's say so we're just gonna add these two together mm-hmm c3 and c4 gimme okay so your new loan would be roughly this okay so you're looking at a hundred and eighty six thousand three hundred twenty one dollars so again that's including the fee so new loan with fees okay all right we were able to get 3.5% so the reason we wanted to do this is get a lower interest rate of course you know in the fifteen year is gonna typically give you a little bit of a lower interest rate compared to the thirty-year okay and so let's put those numbers into our calculator and see what our new loan looks like here so let's pop this number in so we've got 186 because we want to figure out the monthly payment here so let me grab a fresh calculator here put a new loan amount in here one eight six three two one one eight six three two one point okay five I believe oops that's right we've got a three point five percent interest rate and again that's gonna require a good credit but let's say you have that and so in their you know repayment periods give me fifteen years okay so and you know a couple things so right off the bat here okay right out the bat here the number one thing that just jumps off the paper and you need to be very aware of is that when you refinance from a thirty year into a fifteen because you're reducing the time it will increase your payment because you know bottom line guys is the only way to pay down principal is to pay down principal and so the only way you're gonna pay it down fifteen years is to send them more money every single month okay and so you know from your free cash flow you need to send an additional now we're up to thirteen thirty one ninety eight so let's get that on our sheet alright okay they're the same at twenty five years now you're in no fifteen you know it goes down you know by ten x four years quicker because we're sending in an additional three hundred seventy seven dollars and fifteen cents on the mortgage guaranteed fixed payment every single month and so and by doing so we'll get it done in 15 years and let's look at this loan so again if you didn't refinance again okay on this new loan you're paying fifty three four three four nine eight worth of interest okay so let's get that up there 33 for 94.9 eight believe them and just verify five three four nine four point nine eight that's right okay and now we can't forget about this fee right yes you know we can add the two interest numbers together to see how much we paid in interest but again you also had to pay that fee so let's add those numbers up okay and we'll come up with our total interest paid okay plus fees okay and it will be let's put in the formula so equals some okay and I'm just you know being you know using a little basic Excel calculation here so equals some beat 8 + C 8 + C 4 so beat 8 + C 8 + C 4 parentheses equals okay and so this is how much okay so what's really really cool about this is we did actually pay less you know by making this move from and again it because we were able to say if half a point in interest and when again we didn't pull any money out this is a straight up we're going from that thirty-year mortgage you were in into a 15-year right by doing so and even though we had to pay a fee and we went with a 3% fee as far as like a verge on your closing costs you know we end up paying a total of 97 106 worth of fees and interest okay in comparison so let's look at the total time paying mortgage okay so you've already paid for five years is paid you know you did five years here right we're talking it's a it so you did five years like you spent five years in prison or something like that I'm just kind of cut it kind of is it's a five years here okay and 15 years here so a total of 20 years total okay so we were able to eliminate your mortgage now in 20 years instead of 30 s are able to save yourself 10 years and you're able to save yourself a little chunk of change here as you can see the 97 106 in total interest you know let's compare that to what it would have been if you just stuck and stayed with your original loan right if you were to just stuck and stay with the original loan and just made your payment's for an additional 10 more years right you would actually pay it 143 739 so let's get that up there one four three seven three nine one four three seven three nine okay and so we can do a quick calculation here so equals some okay and we got B 10 minus C 10 okay and so what's great is you were actually able to say by doing this if you're able to get those numbers okay by doing so you would actually save yourself forty six thousand six hundred and twenty dollars or Wow you'll be able to save yourself forty six thousand six hundred thirty two dollars worth of interest off the life of the loan so what's cool is you were able to actually save you know ten years instead of you paying on this mortgage for thirty years you know now you only end up paying for a total of twenty years and you saved yourself forty six thousand six hundred thirty two dollars so does it make sense you know um to you make that shift and go from a 30-year mortgage into a 15-year mortgage doesn't actually save you interest yes it does okay as long as you get a lower interest rate now you can run into some problems here and there's a few ways you can run into problems number one okay there are only reason that you realize this entire savings okay is because you stayed in the property for the additional fifteen years okay so if you're looking to do this 15-year refi in order for you to truly realize that big savings you're seeing in the box right there would be if you stayed in there for the duration of that loan so if you're planning on moving or if you're planning on let's say selling your property or upgrading your property or downgrading your but whatever but if you're not gonna stay in that loan for the long haul you're not gonna realize all of the savings okay so let's say you're going to do this refi but then you want to sell the next one or two years well then you run into a couple of different issues where the fees okay that you paid to get this new loan may be more than okay the savings and interest that you realize by doing so also keep in mind that we were able to get a reduced interest rate right if you weren't able to get that like let's say they're like okay well we can get you in a fifteen year but based on your credit or whatever the case may be we got to keep you you know at that four percent that you were at originally but we'll get you into a fifteen year a lot of people will do that because again again in their mind it's like well I'm gonna be paying this quicker right so it's still a benefit to me and it still might be let's look at the numbers and what we see is just adding that half a point took our interest up so we went from fifty three four okay and getting that half point back on there were 15 years now we're back at 61 seven so we're talking about an additional eight grand worth of interest so when you look at our number here it would be this number minus about eight grand if you had to maintain the same interest rate okay and the third thing is of course the fees okay you know with this with this particular lender and this is where you need to shop around a little bit if you're looking to do this because you want all the fees explained to you you don't want any surprises you don't want to show up when it's time to close and all of a sudden they're like yeah you know for some because again loan officers get paid in certain ways Bini of them are Commission based and the more fees or junk fees they can add to your refire add to your new loan the more commission they make okay so you want to make sure that they're very upfront with you about the fees but again we use a 3% you know average for our fees those fees can be as high as six or even eight percent you know as far as the amount borrowed depending on your lender so you know in a game with we went with three percent you know if we had upwards of eight percent which would be absurd you know if you but again this is where if you don't have good credit you can come back and get you and you're just gonna have to pay higher fees to do these type of maneuvers but again let's say you have the 186 I'm sorry the the one eight zero eight nine five and let's say we had to have 8% in fees okay which again will be very extreme now instead of fifty four hundred and fees now all it's more like fourteen thousand so you know that's up using a three to eight percent range right there you know and maybe maybe 8% is a little aggressive you know let's take a look at like a 6% fee right which is you know you will see that okay times point zero six okay and you're looking at over 10 grand okay you're looking at ten eight if you were at a six percent closing cost you know we're the closing costs fees so again you know we use 3% here but you got to pay attention that if you're gonna do this and they say yeah you know the fees are average about 6% you got to put that into your calculation and so if we had 6% okay again that would add money here and that would reduce money here okay as far as again that total savings over the life of the loan okay but again if we were able to get these terms okay if you have your credit in order and everything's all good and you went ahead and took on this larger payment you would absolutely pay this thing off sooner and you would pay less money and interest by about forty six thousand forty six six in this particular scenario so hopefully you guys found value in this training and the bottom line is are there other ways to pay this mortgage off is there a even faster way to eliminate this mortgage you know would it make sense to actually just keep your 30-year mortgage and instead of doing a refinance instead of paying these fees just go ahead and pay okay because a lot of people another idea is that why not just make this start making this payment okay why even bother with a refinance and just start making this larger payment just add this to your monthly principal payment every single month and so let's run the numbers on that really quick just to see if it would make sense to just go ahead and send that extra 377 on your thirty-year you know maybe that would actually pay it off a little bit quicker so let's take a look at that here okay and again let's put ourselves down to okay let's go back to our this loan amount here okay and we're at our 4% and again we're looking at getting this thing paid off in 15 years okay okay so let's go back to our 30-year mortgage here and let's start applying the principle payments and now that we're here at month 60 so again you've been paying on this for five years back to where we started and instead we're like okay we're not gonna do the refi we're just going to keep this same mortgage but start sending the payment size of a 15-year mortgage on this one you know in a couple reasons you may want to do this number one is you don't have to qualify for a new loan maybe your credit has changed a little bit you have cash flow and you have income but your credit has changed where you may not qualify for a 15-year mortgage so you may not qualify but again you still want to get it paid off quicker okay so what we would do is and again you can use this calculator again if you haven't downloaded yet you can grab this off think like the wealthy comm slash calculator you can get this exact calculator so you can even follow follow along you know as I'm doing this but let's say we started making that extra payment and see if this will actually help us pay off the loan a little bit quicker so let's go three seven seven one five okay so on month sixty one we started sending in and I show three seven seven point one five okay and boom okay so on month I see one right now and we're just gonna add that in for each and every month we're gonna keep paying an additional three seventy seven and fifteen cents every single month like clockwork and we're just gonna go ahead and add that in and let's scroll down here and see when we pay this puppy off okay so we're paying this thing off and it tells us that right here as well but we're gonna pay it off now in it two hundred and forty two months okay so let's see we couldn't run the math on that so 242 divided by 12 for 12 months so look at that we paid on this for twenty years call it a twenty years in two months so it took us twenty years in two months to pay off the mortgage okay so it took us an extra two months in comparison to doing the refinance took us 20 total years we spent five years in the old loan and then we spent 15 years in the new loan we paid it off in 20 years by keeping the same loan okay you know just keeping the exact same loan and then just sending in a payment starting in year five okay starting in year five I'm starting to send in the additional 377 every single month we were able to actually pay it off in just over twenty years so we're able to kind of get to the same place okay but let's look at the amount of total interest by keeping that same loan we paid ninety eight five forty seven okay which is definitely a lot cheaper than you know not sending in any extra and just making the payments for 30 years we were paying this so we're paying a heck of a lot less you know doing this we're saving gosh almost $45,000 here of interest off the life of the loan by just sending that in and again we started in year five okay by doing it the other way okay we paid 97 106 okay worth of interest and fees so 97 106 - I mean we're kind of splitting hairs here 97 106 so we're talking about $1400 okay it's about $1,400 more that you would pay an interest if you just went ahead and started sending in the 377 15 at year 5 you know and because again that's just another option again if you are unable to qualify for a better interest rate or even just straight-up unable to qualify for refinance but you want to pay it off early you can calculate what your 15 your payment would be and then send that additional payment principle only directly to the mortgage and get this thing paid off in roughly the same amount of time but you are gonna pick just a little bit more I mean based on this analysis we're looking at about about 1400 bucks more that you would pay but again you don't have to deal with refinancing qualifying all those different things you can still get to the same result of paying this thing off in roughly 20 years by using this approach as well and the bottom line does that take discipline yes you know because it's money that's sitting in your account and you're choosing to send it into the mortgage are there other things you could do are there other ways that you could attack the loan yes but we'll talk about that in other videos you know here we just simply wanted to show does this save you interest moving from the 30 year to the 15 the answer is absolutely yes okay but also can you get to this same result and get the same kind of savings just sending the 15 year payment and again starting in year 5 we started sending in that that additional that 15 year size payment and we we used your five because again that's when people typically refinance is about that fifth year so if you started in year five and then started sending in that extra you would get to roughly the same place at roughly the same time without having to qualify for a new loan so hopefully you guys found value in this training and in this breakdown if you did make sure to give it a like give it a comment below and I will see you in the next video [Music] you

Channel: Think Wealthy with Mike Adams

Views: 252,953

Keywords: velocity banking, velocity banking strategy, how to pay off your mortgage early, how to pay off your mortgage in 5 years, how to pay off your mortgage in 5 to 7 years, how to pay off your mortgage fast, how to pay off your mortgage faster, 15 year mortgage, think wealthy, think wealthy velocity banking, velocity banking mike adams, refinance, should you refinance your mortgage, refinance or pay extra, 15 year vs 30 year mortgage

Id: O-B2nbl_O3M

Length: 26min 37sec (1597 seconds)

Published: Tue Oct 01 2019