A home mortgage is a loan many people expect to last a lifetime. Although it is expensive, that does not mean that the long term cost of interest cannot be reduced as a result of good credit.
Some borrowers obtain loans when the prime rates are higher than the current ones, and others find themselves in a position to purchase a home when their credit scores are not in the best shape.
As a result, higher interest on affordable payments leads many to pay much more than necessary over many years of home ownership.
Credit History Dates Back Seven Years
For borrowers with credit histories that are less-than-stellar, there is hope that one's score will improve with time. If a person made late payments on a credit card, or ended up in collections as a result of not paying a medical bill, the effects are negative to credit scores, but only for seven years.
The reason this is important is because if a person engages in good credit practices for seven years subsequent to the date that their score took a dive as a result of late or non-payments, then it will be lifted nice and high, affording him to refinance a home after that time has passed.
Big Savings in Lower Interest Rates
While there are reasons to refinance and reasons not to, one idea that puts most in favor of refinancing a home mortgage is the amount of money that will be saved over the term of the loan in interest payments.
For example, if a couple had borrowed $450,000 to purchase their dream home at a 6% interest rate, they would pay over $520,000 in interest over the course of a 30-year loan. However, if they refinanced the $305,000 they would owe in principal after fifteen years of diligent payments to a rate just 1% lower on a 15-year loan, they would save $16,000 in interest while paying a monthly payment that was $286 less. The total net savings over 15 years would be more than $67,000!
While the amount saved in interest seems paltry on such a large loan, it is more than made up for in the monthly savings that could account for the couple's budget for dining out, a car payment, or monthly contributions to an individual retirement account.
Those who borrow should use their good credit history to their advantage. If not, lenders are always happy to collect the thousands of dollars that would otherwise be in the pockets of their customers.
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