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Deciding whether or not you should refinance your home mortgage depends upon several factors. It also depends upon whether you are looking to simply reduce your monthly payment or if you are hoping to save money in the long run.
To understand better, let’s look at an example. If your original 30 years loan was for R250,000.00 with a 5.000% interest, and you have already paid on it for 60 months, it will reduce your monthly payment if you refinance for a new 30 years period but with a 4.500% interest rate.
Probably, you are paying R1,342.05 per month toward your home. When you refinance at the new rate, you will pay R1,163.21 instead, saving you total R10,730.84 in monthly payments. The bottom line is:
- total monthly payment savings will be R10,730.84
- your remaining balance will be R5,917.74 bigger because you will pay less toward your mortgage principal (bigger principal is worse)
- quitting previous loan and opening a new one will cost you R2,000.00
Summing up these numbers, we can figure out your total refinancing BENEFIT, which will be R2,813.10.
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