You’ve heard the old expression, “Time is money”? Most folks don’t realize it, but they could save thousands of dollars by changing their loans.
And now is the time to do it. Rates are at record lows, many banks are courting borrowers, and millions of Americans like yourself are cutting their debt load during the recession.
Where do you begin? Try your home equity loan, mortgage, auto loan and credit cards.
With the right timing moves, the average family could slice upward of $25,000 off their total debt, and reduce their monthly payments to something manageable. All it takes is having the gumption to switch your loans.
– Savings Plan No. 1: You owe $25,000 on a home equity line of credit at 8 percent. The borrowing agreement calls for you to pay off the balance over the next 10 years.
Assuming your rate doesn’t change, you’ll pay the bank $303 a month and a total of $11,400 in interest.
You can cut that if you refinance the line with a biweekly home equity loan. That’s right, biweekly, the kind where you make a payment every two weeks instead of once a month. Several outfits in the Northeast have biweekly home equity loans, and more are likely to follow the trend.
Sign up for a 10-year biweekly loan, and your fixed rate should be the same 8 percent (or better). The biweekly payments will be $140, but it would be better if you upped that to just $151.50 (half the monthly payment on the other loan).
The debt would be paid off more than a year early, and you’d save $1,500 in interest.
– Savings Plan No. 2: You’re carrying a $70,000 mortgage at 8.75 percent, with payments of $562 per month. You already refinanced a couple of years ago, but no one’s bothered to explain how you can go back again and save even more.
Our latest Bank Rate Monitor national averages show the 30-year fixed rate at 7.03 percent, the 15-year at 6.53 percent.
Refinance at today’s numbers and the 30-year mortgage will run you $466 a month. You save $22,900 in interest over the life of the loan.
You could afford to go the 15-year route. Your monthly payment would go up to $610, but you’d save a whopping $81,000 in interest!
– Savings Plan No. 3: You still owe $8,000 on your 1992 Chrysler; the monthly payment is $339 based on a four-year loan of $13,000 at 11.5 percent, the rate in effect when you bought the car nearly two years ago.
Because auto lending rates have dropped like rocks in the last four years, by refinancing the vehicle for two years at 7.5 percent, your monthly payment will rise a bit to $360. But your total financing cost will drop by $500.
– Savings Plan No. 4: Let’s pretend you’re still one of those foolish people still paying a ridiculous 18 percent or more on your credit cards.
You’re carrying a balance of $5,000 and are paying a stiff 19.8 percent on one card. Even if you don’t charge another dime, it’ll take two years to pay off the balance if you mail in $254 a month.
The smart move would be to move the card balance to another card issuer that’s offering a special 9.9 percent rate just for balance transfers. That will drop the monthly payment to $230.
Stick with the $254 payment with the cheaper card and you’ll be out of debt in a little under 22 months instead of 24, and save more than $600 in interest.
How do you start hunting when you refinance? Shop, shop, shop. Don’t take the first “good” offer you find. Odds are some other bank or credit union has an even better deal. Ask friends and neighbors for suggestions, and comb the newspapers for leads.
Once you find a likely lender, arm yourself with questions about your new loan:
– How much will my new payments be?
– How much will I save in interest over what I’m paying now?
– What are the fees and charges on the new loan?
– Are there any penalties for paying off the loan early?
– Do I have to open another account, such as checking, to qualify for the loan or to get an advertised discounted rate?
With all the money you could be saving, it’s time to get off your duff while rates are at bottom.
