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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.