Saving money with lower rates isn't the only reason to
refinance. Opting for a shorter loan can also save thousands in
interest and free up income in the future. A short term loan can
also help you pay down your principal quicker.
Better Rates
A 15 year mortgage has a better rate than a 30 year mortgage
offered the same day - usually by a quarter of a percent.
However, even if rates are the same as your current mortgage,
refinancing to a shorter mortgage can save you thousands in
interest by paying off the principal sooner. Your monthly
payments will be slightly larger, but that is because a larger
portion of the balance is being paid.
Offers Self-Discipline
Short term loans make your decision to pay off your mortgage
official. For those that have a hard time making extra payments
on their mortgage, a short term mortgage may be the answer.
It is helpful to first look at your long term financial goals.
Perhaps you are planning to pay for kids' college tuition, to
retire, or to reduce your debt load in the future. Decide when
you want your mortgage paid off and look at the monthly
payments. You can choose a number of periods - 15, 20 or 25 year
home loans.
Factors To Consider
Low rates aren't the only factor to consider when deciding to
refinance, the payment period is also important. By simply
making larger principal payments, you get rid of your loan
sooner and save money on interest payments. Additionally,
reducing your debt level by paying off your mortgage also
improves your credit and financial situation.
However, you should also remember the immediate impact of a
short term mortgage. A larger monthly payment can put a strain
on your monthly budget. You may also find that if you plan to
sell your home within a couple of years, you will not recoup the
cost of refinancing fees.
You are also limiting your financial flexibility. You are
committing yourself to a larger principal payment. You could
choose to simply pay down the principal when you have the
available cash.
In the end, short term mortgages do have their benefits and
should be considered when you plan to refinance.
About the author:
View our recommended mortgage
Refi
lenders. Carrie Reeder is the owner of
ABC Loan Guide, an
informational website about various types of loans.
