Three Ways to Stiff Your Bank

The housing market boomed during the pandemic...

Communities across the U.S. saw home prices soar, some hitting all-time highs. For example, in Las Vegas, prices are up nearly 21% from the same time last year.

One of my researchers told me homes were selling in her neighborhood before they were even officially listed... sight unseen.

Low interest rates have helped drive home sales.

Right now, a 30-year mortgage has an interest rate of 2.87%. That's down from nearly 5% three years ago.

People aren't just buying new homes... Rates to refinance are also near record lows. In 2020, applications to refinance doubled.

It's no wonder. A home is one of biggest debts we'll carry in our lives. And over the life of a loan, you could pay nearly the price of the home in interest alone.

Let's take a look at an example...

Let's say you bought your home five years ago for $230,000. We'll assume you put 20% down, so you're left with a $184,000 mortgage. Using interest rates from around that time, we'll go with a 4.5% rate for a 30-year fixed mortgage. That means over the life of the mortgage, you'd pay $151,628,35 in interest.

If you spent the same today, but used today's interest rates of 2.87%, you'd only pay $91,710,74 in interest. That's nearly $60,000 saved in interest alone!

So today, I want to share three ways you can pay your current mortgage off early and save on interest...

Tip No. 1: Refinance.

The average 30-year mortgage rate is sitting near all-time lows, at 2.87%. If you're looking to refinance your home, the rates are even lower. Right now, you can refinance a 30-year mortgage for around 2.75%.

One good rule-of-thumb is to consider refinancing your mortgage if interest rates drop by 1.25 basis points or more from your original rate. For example, if your original interest is 4% and rates are currently at 2.75%, that's a good time to think about refinancing.

Just be sure to look at the cost to do the switch.

Every 1% of the mortgage amount you pay in fees to refinance, adds about one more year to the breakeven point. So if rates drop 1.25% and it costs 2% to refinance, figure about two years before you break even.

One of my colleagues recently refinanced her home. She switched from a 30-year mortgage to a 15-year mortgage and saw her interest rate drop nearly 2 basis points. She told me she'll save nearly $70,000 in interest and her monthly payment only increased $100.

Tip No. 2: Switch to biweekly payments.

This is by far the easiest way to cut back your interest payments and save the most in the long run. Using our example above, switching from monthly to biweekly payments will cut four years off your mortgage and save you $26,716 in interest payments. Not only are you making an extra monthly payment per year, but increasing the frequency helps cut down the interest.

Tip No. 3: Add small amounts to your payments each period.

It might seem obvious, but the savings add up tremendously. You can try rounding up your payment to the next $10, $50, or more. In our example, adding just $20 to a monthly payment can save you $7,578.09 in interest... And you'll save even more if you switch to biweekly payments. In fact, in our example, adding just $20 to a biweekly plan will save you $34,294.09 in interest.

If you're not already using these tips, get started today. After all, why should you give more free money to the banks?

As I mentioned on Wednesday, I'm still bullish on the housing market. And so is my good friend and colleague Dr. Steve Sjuggerud.

According to Steve, U.S. real estate is the biggest opportunity in the markets in 25 years. He expects investing in housing could be the biggest win of his lifetime in the markets.

To get the real story of what's happening and how you can profit, click here to learn more.

And now it's time to get into this week's Q&A. We love reading your e-mails, so please keep sending them to [email protected].

Q: What's the difference between the Perfect Inflation-Era Portfolio I read about in Retirement Millionaire, and the Intelligent Retirement Model you share in Income Intelligence? Both are supposed to address inflation, but they are quite different. – R.J.

A: The Perfect Inflation-Era Portfolio is designed to do one thing, protect your wealth against inflation. If your biggest fear is inflation, this is what you should do with your money. (If you fear inflation less than that and want to continue pursuing returns from bonds and growth stocks, you can use our inflation portfolio as a portion of a more traditional allocation.)

Also, the Perfect Inflation-Era Portfolio doesn't change. It's a one-step, set-and-forget way to hold assets that we expect to perform better than a traditional portfolio.

Our Intelligent Retirement model is different. It is designed to protect against inflation, but also do more. It is actively managed to shift assets, quarter-by-quarter, depending on our quantitative view of growth, inflation, and momentum in various markets. It is also more aggressive. For instance, it currently allocates 45% of its portfolio to gold, as inflation protection. We consider it a full-featured, active replacement to the traditional 60-40 portfolio.

Which should you use? That depends on your goals, how much inflation threatens your lifestyle, and how actively you want to shift your portfolio through retirement. The Perfect Inflation-Era Portfolio has a narrower focus and is simpler. The Intelligent Retirement model can cover more ground, but it takes more work.

Q: You wrote recently about the downside of drinking fruit juices. That doesn't apply to making a smoothie by mixing fresh fruits in a blender, does it? – A.C.

A: Fruit is a valuable part of any diet, but juice is not the same. Fruits are loaded with both cancer-fighting antioxidants and fiber. Fruit juice lacks the fiber of whole fruit. The fiber in the fruit helps to slow the absorption of sugar. Because fruit juice is high in sugar – and there's nothing in it to slow the absorption – it causes spikes in glucose that increase your risk of developing diabetes and cancer.

If you're using the whole fruit in the smoothie, you're in better shape than you would be if you drank juice. That's because you're still getting all of that healthy fiber.

Another benefit of smoothies? They're a great way to hide vegetables if you don't like eating your greens. But be careful if you're adding yogurt to your smoothie. Make sure you're buying plain yogurt so you're getting all that healthy gut bacteria without added sugars.

What We're Reading...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
September 10, 2021