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Money Matters
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Old 08-23-2013, 04:12 PM   #1
fraser19
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Join Date: Oct 2010
Location: canada
Posts: 145
My Ride: 2004 330CI M sport.
Financal Loan Advise

Hey guys,

I am hoping for some advise with my loans and ideas. A little bit about myself I am 24 and have a good job paying nearly 50,000.00 a year. I currently have $26,157.21 in debt rolled into a 5 year loan at 8.2%.

I spent the last few year building up a good RRSP of nearly $60,000.00 that is diversified into four different funds that averages a 10.24% return. I feel that the money I make now is the most important money I will ever make as it has about 41 years to grow and accumulate interest. I also understand that my investments wont hold at 10.24% interest forever but I should be able to retire on over 3,000,000.00 with my current contribution of 250.00 monthly and my employer also matches that.

Now back to my question. I would like to be debt free as soon as possible so that I can buy a house. I currently live with my girlfriend who owns her condo (mortgaged still) but my rents is only $340.00 a month.

What I have been thinking about doing in at the end of the first term is refinancing my loan for another 5 years at hopefully a lower interest rate and lower payment rate and then making the same amount of money in additional payments.

I have set up my loans so that any additional payments go to only the principal amount. Right now my monthly payment is $578.88. $368.60 of that goes to the principal amount and $184.73 goes to interest and lastly 25.55 goes to loan insurance.

At the end of this term I will owe $21,734.01 and if I renewed it on a 5 year loan it would go to $443.00. I am wondering if you guys feel it would make sense to do this and then continue making the $578.88 payment with 135.88 of that going directly to the principal sum?

Does this make sense to do so that I will be paying less interest?

I have never dealt with a loan before except for with my car loan that was at 0% and stayed 169.02 for the full term.

I worked this out on my own and it wasn't as impressive as I had hoped for. Also worth noting in my calculations below I am not sure how the insurance will adjust so I left it the same for the entire equation.

Year 1
Currently owe $26,157.21
Payment are 578.88
Payment applied to principal is 368.60
amount applied to interest is $184.73
Amount applied to insurance is 25.55
Total interest paid 2208

Year 2
If renewed after one year the balance would be
New total owed $2,1734.01
Monthly payment of 443
Amount applied to principal 337.22
New monthly interest 80.53
Amount applied to insurance is 25.55
Additional payment of 135.88
Total interest paid 966.36

Year 3
If renewed a second time the new balance would be
16,056.81
New monthly payment would be 327
amount applied to principal would be 242.20
Amount applied to interest would be 59.50
Amount applied it insurance would be 25.55
Additional payment of 251.88
Total interest paid 714

Year 4
New amount owing would be 10,127.85
New monthly payment would be 206
amount applied to principal would be 142.92
amount applied to interest would be 37.53
Amount applied to insurance would be 25.55
Additional payment of 372.88
Total interest paid 450.36

Year 5
New balance would be
3936.25
New payment 343 with 177 paid in interest.

Total interest for total loan at this point 4515.72
I feel it is worth mentioning that this will save over 1500 in interest based on what my bank calculated. I also did all of the calculations as the same interest rate and hopefully I will be able to renew them at a lower rate.
The reality is that I will not likely renew this four times. I also realize that I am not entirely sure I know what I am talking about at this point in time this is just what makes sense to me at this moment.

Thoughts and input are welcome.

Last edited by fraser19; 08-23-2013 at 04:12 PM.
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Old 08-26-2013, 05:45 PM   #2
Wraisil
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Join Date: Apr 2004
Location: Acworth, GA
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Run the numbers again with just an initial refi and at the current refi interest rates. That will give you a much better picture. Don't assume rates will be this low or lower 2, 3, or 4 years from now. It is probably worth doing a refi now to save on interest though AS LONG AS you actually continue to put the extra (read current payment) to it each month.
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Old 08-27-2013, 02:58 PM   #3
fraser19
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Join Date: Oct 2010
Location: canada
Posts: 145
My Ride: 2004 330CI M sport.
Quote:
Originally Posted by Wraisil View Post
Run the numbers again with just an initial refi and at the current refi interest rates. That will give you a much better picture. Don't assume rates will be this low or lower 2, 3, or 4 years from now. It is probably worth doing a refi now to save on interest though AS LONG AS you actually continue to put the extra (read current payment) to it each month.
Yup making the same amount in payments if not more in order to avoid as much interest as possible has always been the plan.
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