Meet Harry and Meghan, they purchased their home the peak of the market in April 2022 for $1,200,000. They had saved up a whopping $180,000 after many years of hard work and, a frugal lifestyle, and smart investing with guidance from their financial advisor. They were also fortunate to have been gifted an additional $60,000 from their parents, for a total down payment of 240,000.
The one miscalculation may have been on being convinced to take the lowest possible two fixed mortgage at 1.8%, rather than a slightly higher rate for a five year fixed. Their mortgage term will soon come due and will be set to a five year fixed for 6.5%, which will more than double their monthly payments. They are looking for solutions.
Here are some tips to help Harry and Meghan navigate the choppy waters ahead:
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Refinance: homeowners can refinance their mortgage to a lower interest rate, which can result in significant savings on monthly mortgage payments. For example, if a homeowner refinances their mortgage from 6.5% to 4% over a 30-year period, they could save approximately $254 per month, or $91,840 over the life of the mortgage.
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Make extra payments: making extra payments on a mortgage can help to pay off the loan faster and reduce the amount of interest paid over the life of the loan. For example, if a homeowner makes an extra $200 monthly payment on a $1,200,000 mortgage with a 6.5% interest rate, they could save approximately $54,000 in interest over the life of the loan.
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Reduce other expenses: homeowners can reduce their monthly expenses by cutting back on unnecessary expenses, such as eating out, subscriptions, and memberships. For example, if a homeowner reduces their monthly expenses by $500, they could put that money towards their mortgage payments, which could save them approximately $30,000 over the life of the mortgage.
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Increase income: homeowners can increase their income by taking on a part-time job, renting out a room in their home, or starting a side business. For example, if a homeowner increases their income by $1000 per month, they could put that money towards their mortgage payments, which could save them approximately $60,000 over the life of the mortgage.
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Create a budget: creating a budget can help homeowners keep track of their expenses and find ways to reduce them. For example, if a homeowner creates a budget and finds that they are spending $300 per month on groceries, they could reduce that expense by $100 per month by shopping at discount stores or using coupons. This could save them approximately $6000 over the life of the mortgage.
It's important to note that these tips are only examples and the actual savings will vary depending on the specific terms of the mortgage and the homeowner's individual financial situation. It's also important to consult with a financial advisor before making any major financial decisions.
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