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Mortgage Refinance to Reduce the Term
If you have a conventional fixed rate 30-year mortgage, you’re alongside the majority. Most people who buy homes—especially those who purchase their first one—opt for the longest payout schedule possible, in order to take advantage of lower monthly payments. But shorter loans should not be overlooked, because they can represent huge savings over the life of a mortgage.
Refinancing for Dramatic Mortgage Loan Savings
The bulk of the money spent for your monthly mortgage payment is dedicated to paying interest. A house that sells for $200,000 today may wind up costing more than twice that price, once all the interest payments are calculated during the course of three decades. By shortening the life of the loan, the savings can be dramatically increased—often by hundreds of thousands of dollars. Once you do the math, it’s easy to see why shortening the term and reducing interest payments is the most popular reason why people refinance.
Organize Your Finances
Another compelling reason to do a mortgage refinance and change your mortgage loan’s term is to organize your financial plans. If you’re 50 years old and plan to retire at age 65, paying off your mortgage in 15 years may be a rewarding strategy, both financially and personally. When retirement arrives, you’ll have no more mortgage payments to make, and you can enjoy a smoother and happier transition into your golden years.
Many parents, who have children headed for college in 10 to 15 years, will often do a home refinancing to shorten their term and pay off the mortgage before the tuition bills begin to arrive in the mail. This way, they no longer need to worry about making payments of tuition and mortgage at the same time, which can offer them welcome relief. In many cases, they can save enough to offset the cost of a child’s education by not paying an extra 15 years of mortgage interest. That’s a double-barreled bargain worth looking into, especially with interest rates near their all-time lows, but threatening to reach double digits within the next few years.
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