Does Loan Structure Really Make A Difference?

One of the things that aggravates me most are the people in my industry who claim to be mortgage consultants but either lack the knowledge or are unwilling to share their knowledge by explaining to their clients the options they have in the structuring their loan.  It has been my experience that this may be one of the most important factors in helping my clients achieves their goals.

Let me share three examples of how the structuring of the loan creates a significant difference in the results to the borrower.  In all three examples the borrower has come to me and wants to refinance their loan.  Their current principal balance is $350,000, their interest rate is 6% and their monthly payment is $2,255 and they have 25 years remaining on their loan.  The rate for a new 30 year fixed rate mortgage is 5% and all loan costs will be included in the new loan in each example.

Example One: You refinance with a standard loan structure for a new 30 year fixed rate loan. You lower your monthly payment $340 per month.  However, with this option you would end up paying an additional $13,000 of interest over the term of the loan.  Depending upon your goals and how long you plan on keeping the loan this may be a great option.

Example Two: You refinance with the same loan but structure the payment so that the new loan has the same 25 year term as your existing loan.  You would lower your monthly payment by $169 per month and you would lower the amount of interest you would pay over the term of the loan by nearing $51,000.  This structure would provide an overall saving of nearly $64,000 in interest vs. the loan structure in the first example.

Example Three: Same new loan but you set the payment to be the same as your existing loan. You shorten the term of the loan to approximately 21.5 years.  Your overall savings over the term of the loan would be approximately $92,400.  A savings nearly $105,000 vs. the structure of a standard 30 year fixed rate loan.

These are only three of many ways to structure a loan to provide different results depending upon what your goal or goals may be in refinancing.  If you would like to see options for your unique situation feel free to request your own personalized Free Refinance Analysis.

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