Home Loan Mortgage Loan Refinance – Refinancing For A Shorter Term To Save Money

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.

Written by: Carrie Reeder