Faye's Blog

“A dollar saved is a dollar earned.” We have all heard this at one time or another. Most of us neglect to actually put this into practice. It is however, a key factor considered by most millionaires. They are always looking for ways to save a dollar and earn a dollar.

To illustrate what can happen when we do put this theory into practice, I am going to share with you an example of a refinance proposal I recently presented to a client.

The proposal was based on a loan for $417,000 with a reduction in interest rate from 5.125% to 4.375%. It was to be a loan with no points, no fees and no closing costs. The monthly mortgage obligation was reduced by $193 per month. The client decided not to proceed with this new loan because he felt that a savings of nearly $200 a month was not a significant amount and in addition to this his schedule was too busy.

Had he decided to accept this new loan, the savings realized would certainly have been significant over time. To illustrate this point consider the following:

A savings of $193 a month totals $2,316 a year in savings. Over the life of the loan the savings equals $69,480! While a new interest rate would have reduced his monthly obligation, if he still continued to make the old payment after the refinance, in another words, pay the $193 savings towards the principal of the loan, this would result in paying off the loan in 25 years 2 months rather than 30 years. By paying the extra amount toward the principal and reducing the term of the loan, there is an additional savings of 4 years and 10 months worth of principal, and interest payments made. All totaling a savings of $131,660!!

It takes approximately 4 hours to complete the process of requesting a loan. Each of the 4 hours in this example represents $32,915 in cost to this client! This means he is taking $131,660 away from his family, and giving it to a lender. As you can clearly see the savings are available with very little time invested to accomplish this out of someone’s busy schedule

Do you think a millionaire would have been too busy to complete this loan application given this information?

I would love to hear your thoughts!