Lower Mortgage Payments Can Increase Wealth

Optimizing Wealth Management Through Mortgage Refinancing

Creating and maintaining wealth is a challenging endeavor, as many millionaires would attest. Balancing a dream lifestyle with controlled expenses often presents significant difficulties. As a financial advisor, I have helped individuals accumulate wealth while also finding ways to minimize essential expenses. Mortgages are a major expense for most people, but they offer opportunities for income tax deductions while providing a place to live.

Consider this scenario: What if you could lower your mortgage interest rate to 3% and only pay interest for 5 years? Would you refinance your current mortgage or consider purchasing another property? In a recent refinancing case, I discovered such an opportunity for a client, resulting in substantial savings over the next few years. Here’s a breakdown of the client's situation:

Client #1:

• Loan Amount: $500,000

Current Situation:

• 30-Year Fixed @ 6.00%: Principal & Interest (P&I) $2,997.75/month

• 5th Year Loan Balance: $456,989.77

• Equity (assuming no appreciation): $43,010.23

Past Situation:

• LIBOR ARM @ 3.00% (Interest Only): $1,250.00/month

• Additional Principal Payments: $1,747.75/month

• 5th Year Loan Balance: $362,370.82

• Equity (assuming no appreciation): $137,629.18

Client #2:

• Loan Amount: $1.2 Million

Current Situation:

• 5/25 ARM @ 4.25%: P&I $5,903.28/month

• 5th Year Loan Balance: $1,064,681.48

• Equity (assuming no appreciation): $135,318.35

Proposed Situation:

• LIBOR ARM @ 3.00% (Interest Only): $3,000/month

• Additional Principal Payments: $2,903.20/month

• 5th Year Loan Balance: $971,261.81

• Equity (assuming no appreciation): $228,738.19

These scenarios illustrate how refinancing with a lower interest rate and an interest-only payment option can be a powerful tool for reducing monthly mortgage payments or accelerating equity accumulation. This type of mortgage, known as negative amortization, allows for lower payments initially by paying only a portion of the interest, though interest rates can drop as low as 1.25%.

If you're seeking savings, consider refinancing your mortgage to take advantage of these opportunities.