Peter McDougall
Say you are looking to consolidate credit card debt, a car loan and your existing mortgage. You carry $5,000 in long-term credit card debt at an 18% interest rate and you pay $200 on it each month. You also have a five-year, $15,000 auto loan at 7.5%, and you've managed to make two years worth of payments at $301 a month. Finally, you have 15 years left on a $200,000 30-year fixed rate mortgage at an interest rate of 7.51% with monthly payments of $1,400.
All told, your monthly debt payments add up to $1,901 and your overall debt is $165,585 with an average interest rate of 7.83%. If you refinanced your existing mortgage with a $165,585 15-year fixed rate mortgage at 5.91% (the current rate for a 15-year fixed rate mortgage according to Freddie Mac(FRE Quote - Cramer on FRE - Stock Picks), your monthly payments drops to $1,388.37. That's $512.63 less than what you are paying now. Overall, you stand to save $19,243.75 in interest by the time you have paid off all of your debt. The report provided by the calculator also indicates that additional tax savings are available by deducting the interest on your new mortgage -- $3,135.70 in the first year, in this example. However, this calculation doesn't take into account any tax benefits from your original mortgage, and assumes that you itemize your deductions on your income taxes. When contemplating refinancing, you should also take into consideration the closing costs for a mortgage -- typically anywhere from 2% to 3% of the loan amount. To get a feel for how closing costs might affect the calculation, you can add your lender's best estimate of the costs onto the amount of the new mortgage loan.
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