People borrow money for all sorts of reasons, but when it comes to refinancing their loans, people predominantly choose to do so for what comes down to be two simple reasons:
- To increase personal cash flow by reducing the size of their loan payments.
- To increase their wealth by reducing the total amount paid over the remaining life of the loan.
Political Calculations has previously looked at whether it makes sense to refinance a loan purely on the basis of whether an individual's increased cash flow would cover the costs of refinancing, but today, we'll investigate the second reason people choose to restructure their debt.
The tool below has been set up with default data that shows the individual's monthly payment going up substantially after refinancing. Does it make sense to refinance given this circumstance? Just click the "Calculate" button to find out!
As an added bonus, you can use the tool below with your own numbers to determine whether or not it makes sense to refinance your loan by comparing how much you would have paid if you simply let your existing loan ride against what you'll pay if you refinance:
Some Analysis
Using our default data, we see that even if your monthly payment costs go up after refinancing, it's still possible that you will save money overall, depending upon the size of your new payment and how long your new loan lasts!
Then again, if the amount of your payments went up *and* you have a negative result in the tool above, it would be much to your advantage to keep your existing loan as it is.
Labels: debt management, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
Thanks in advance!
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