Long-Term Loan Savings: What a .5% Interest Rate Decrease Could Save on the Life of Your Loan
Since 2015, U.S. interest rates have consistently increased, testing how (and if) the nation’s economy could successful absorb each incremental raise. Apparently, we’ve officially reached our economic threshold; on July 31, 2019, the Federal Reserve cut America’s interest rate for the first time in over a decade by a quarter-point. A second-quarter point cut came in September to help offset concerns over a sluggish economy – and the U.S. government may not be done yet. According to a recently published MarketWatch report, Federal Reserve officials have suggested the high likelihood of a third interest rate cut in October in response to a lackluster September Institute for Supply Management (ISM) report.
How Do the Latest interest Cuts Impact Business Owners and Investors?
For banks and lending institutions, these cuts represent a potential loss of revenue in accrued interest on loans and other financial vehicles. But, for business owners and investors, lower interest rates can mean potentially big long-term savings over the course of their corporate loans. Many borrowers assume that smaller interest rate cuts won’t make a significant impact on their monthly profit margins. However, when looking at the big financial picture of a commercial loan, the savings accrued from even a .5 percent decrease in accrued interest can deliver an impressive return on investment, making refinancing a worthwhile pursuit.
Of course, at Avid Commercial, we don’t just like to tell our partners about the potential savings offered from interest rate cuts; we like to show them as well. Here’s a simple math breakdown on a .5 percent interest reduction on your business or commercial real estate loan with fixed rates. If your current interest rate is at 5.5 percent on a $1,000,000, 15-year loan:
Monthly Payment: $8,170.03
Loan Total Payments: $1,470,750.22
Total Interest: $470,759.22
The same 15-year loan with a 5.0 percent interest rate:
Monthly Payment: $7,907.94
Loan Total Payments: $1,423,428.53
Total Interest: $423,428.53
Over the lifetime of the loan, borrowers can save $47,321.60; savings that can be reinvested back into your operations to support and grow your enterprises.
Want to Hear More?
Whether you need a new corporate loan for business expansion or want to refinance your existing loans at a lower rate, Avid Commercial can help. Contact us to discuss your borrowing needs with one of our financial advisors today.