Mortgages: How to Maximize Your Hard-Earned Dollars

When people receive a large inflow of cash or have accumulated savings, they often ask themselves:

1. Are those dollars best kept in a high-yield savings account for liquidity? 
2. Or should you use some to pay down your mortgage? 
3. Should I consider refinancing?

In today’s dynamic environment, where high-yield savings account rates remain attractive, but could fall if the Fed cuts rates, the long-term math around your mortgage deserves a fresh look. For example:

• Keeping your cash liquid means capitalizing on current rates and financial flexibility for future opportunities or unexpected needs—a vital buffer when markets are volatile.
• Deploying a lump sum towards your mortgage—through extra payments, recasting, or refinancing at a lower rate—can translate into $100,000+ in interest savings and shorten your loan term by years, opening up more financial freedom!

Our recent scenario analysis highlights how combining a one-time payment with a strategic paydown or recast often outpaces simply “waiting for rates to drop.” 

But the optimal move depends on your personal financial plan, lifestyle goals, and risk comfort.

So, how should you weigh liquidity versus debt reduction in this environment?

I’ve prepared six illustrative mortgage scenarios for your review—each with supporting documentation attached for reference. Here are the highlights:

Baseline: The Original Loan

• Amount: $500,000 (Issued August 2023)
• Interest Rate: 6.5% (discounted from an avg. 7.25% in Aug 2023)
• Term: 30-year fixed
• Monthly Payment: $3,160
• Total Interest Paid: ~$637,722
• Scheduled Payoff: August 2053

*For those data analysts out there, 6.5% was used because some institutions will provide discounts of .25%-1% if you agree to move your accounts to them, and the going rate in August of 2023 was approximately 7.25%. Meanwhile, with the potential for rate cuts, 5.5% is used for a current refinance to take into account that same discount.

Scenario Comparisons

1. Leave Loan Unchanged
Total paid over the life of the loan, monthly payment, and payoff date remain as above.

2. Refinance at 5.5% (Lower Payment)

• New Payment: $2,773.36/month
• Payoff Extended: August 2055
• Interest Savings: $63,465
• Upfront Costs: $11,269
• Note: Lower monthly cash flow, total lifetime savings due to lower rate.

3. Refinance at 5.5% (Keep $3,160/mo. Payment)

• Payoff: March 2048
• Total Interest Savings: $180,779
• Strategy: Pay a new, lower payment, but round up to the original amount for maximum principal paydown.

4. $50,000 One-Time Principal Payment (6.5%)

• New Payoff: February 2047
• Total Interest Savings: $133,085
• Strategy: Accelerates loan repayment and cuts total interest.

5. $50,000 Principal + Recast (Lowered Payment, 6.5%)

• New Payment: $2,837
• Payoff Date: Stays August 2053
• Interest Savings: Marginal
• Strategy: Monthly payment drops, but interest and term are mostly unchanged.

6. $50,000 Principal + Recast (Keep $3,160/mo.)

• New Payoff: March 2048
• Total Interest Savings: $197,531
• Strategy: Combine lump sum + higher payment—fastest payoff, highest savings
• Look at refinancing in the future, but take action now

Key Takeaways

Scenario 6 delivers the most significant interest savings and fastest payoff for those eager to maximize returns and reduce risk—without waiting on unpredictable rate changes. Many find this approach empowering, offering flexibility for life's next chapter—whether that's a career change or launching a new venture!

The best strategy for your mortgage isn't the same for everyone; it depends entirely on your individual financial situation, liquidity needs, and long-term goals. Naturally, it’s important to evaluate these strategies within your overall financial plan. By doing so, you can compare mortgage savings with potential investment opportunities, making sure you're choosing the best options for your financial future.

Ready to discover how these strategies can transform your balance sheet? Connect with your Farther advisor today to run a personalized scenario tailored to your specific situation and start maximizing your hard-earned dollars.