Pay Off Debt Faster with Smart Mortgage Refinancing
Hi there. I’m Professor Alex. Today, I will discuss an easy way to save money, invest, and pay off debt. With mortgage interest rates continuing to drop, now might be the time to refinance your mortgage. Contact your lender to find out what they can offer you. If you’re looking to buy a home, the same advice applies.
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Calculating Savings on Mortgage Interest Rates
Let’s review some basic numbers to see how refinancing with a lower mortgage interest rate can help you save money. We’ll start with a simple example. If you have a $250,000 mortgage at 7%, your monthly payment would be $1,663.26. This amount excludes taxes, insurance, and mortgage insurance. You’ll pay this off in 30 years by 2054.
There are rumors that mortgages might be extended to 40 or 50 years to make them more affordable. We’ll see what happens. Let’s see how the numbers change if the interest rate drops from 7% to 6.25%. You’d save $123 per month. It may not sound like much, but be patient. Keep reading to see how a lower mortgage interest rate has long-term benefits.
If we reduce the rate to 6%, your monthly payment will decrease even more. By refinancing and applying the monthly savings to your mortgage, you could pay off your mortgage seven years early. Seven years of mortgage payments are a significant saving.
Let’s say you don’t want to pay off the mortgage early and instead want to increase your savings. What if you took that $164 savings and put it into an IRA? Even with conservative returns of 4%, 5%, or 6%, you could use online calculators to see the potential growth. After 30 years, just by refinancing and investing that $164 monthly, you could end up with $186,000 towards your retirement.
The $164 per month is well below the maximum contribution limits, which depend on your age. For example, at 52 years old, my maximum contribution is $7,000, which might increase next year. Typically, the maximum for a Roth IRA is around $5,000, but you should check the current limits, which you can read here.
Consider investing with the same bank that provided your mortgage. They would be happy to accept your business, and it’s a great way to establish a working relationship with them.
Work Smarter, Not Harder
Now, let me ask: Did you have to work harder to get that $186,000? Did you need a second job, overtime, or additional education? No. That’s why I say money saved is money earned. You didn’t have to work for that money; you just saved it. It’s no different than earning it, but now the money works for you.
You might have credit card debt if you don’t want an IRA or are already maxing out your contributions. Let’s look at those numbers. If you have $10,000 in debt at 18% interest and pay $200 a month, it would take you seven years to pay off that debt, costing you $18,622 due to interest.
Now, add the $164 savings to your $200 payment. You’d pay off the debt in three years instead of seven.
How much did you save in interest instead of seven years and ten months? The number is $2,982. In total, you saved $5,640. What do you want to do with that $5,640? Take a trip, right? You deserve it.
Take half for a trip and put the other half into your retirement account, savings account, or CD. Anything you can do to save money and have it start working for you will help it grow naturally.
It won’t happen overnight, but I always say investments aren’t sexy. Buying a new computer is sexy because you see the immediate benefit, but investments take time. However, time is your friend, and you’ll have much more money by the time you reach retirement age.
Always start by checking with your banks. If you’re considering refinancing or buying a home, get everything in order. Look up your credit report and make sure everything is okay.
There was a massive data breach recently, which I discussed on my YouTube channel. If your information was accessed and someone is trying to get credit cards in your name, you’ll need to resolve that quickly before applying for a loan.
Refinancing your mortgage can be a powerful tool for saving money, investing, and paying off debt. By understanding the numbers and taking advantage of lower interest rates, you can significantly reduce your monthly payments, build wealth, and achieve your financial goals. Remember, time is your friend when it comes to investing. So, start exploring your options today and take the steps necessary to secure a brighter financial future.
For paralegal students using my textbook in your courses, these questions and videos affect you personally and your clients. Feel free to post any questions or comments below. Until next time, everyone has a great day. Be safe, save money, and take care of yourselves.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.
This podcast transcript was edited for clarity.
Updated on May 1, 2025.
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