New Math: Use Mortgage Calculators for More Than Just MortgagesBy Richard Barrington
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Rising mortgage rates have dulled the appeal of the most straightforward reason for refinancing: lowering the interest on your mortgage balance. However, refinancing can still be a valuable tool for debt consolidation.
Look Beyond the Monthly PaymentRefinancing some of your existing debt into a mortgage can help you lower your monthly payments by spreading your debt burden over a longer time period. Mortgage rates are also likely to be lower than the interest on other forms of debt. Even so, you shouldn't define your debt by the monthly payment alone. You should also account for the long-term borrowing costs, primarily stemming from interest.
Compare Mortgage Refinancing to Current DebtUsing a mortgage calculator may seem straightforward for calculating refinancing options with existing term loans, but what about debt which has no fixed term? You can simulate a fixed term loan with similar characteristics by estimating how long it would take you to pay off the amount you currently owe. Take this time frame and the interest rate you are being charged on that debt, and plug those figures into the mortgage calculator.
Be sure also to account for closing costs in the refinancing model. If you are primarily concerned with comparing the impact on monthly payments, add closing costs to your principal in the refinancing model. If you are primarily concerned with long-term borrowing costs, add the closing costs to the interest total of the refinancing model. Either way, you can then compare this model to the totals from your current debt burden to see if refinancing would create an improvement.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.
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