Refinancing To Change The Length of Your Mortgage
While many homeowners opt to refinance in order to reduce their monthly payments, others choose a home refinance to shorten or lengthen the term of their home loan.
Low interest rates always entice homeowners to consider refinancing a mortgage, but before completing an application for a new home loan, homeowners should carefully evaluate their short-term and long-term goals.
Potential reasons to refinance a mortgage
· Is your goal to reduce your monthly payments?
· Do you want to take some cash out of your home equity to pay other bills?
· Do you want to shorten the term of your mortgage so you can pay it off faster?
· Do you want to switch from an adjustable-rate mortgage to a fixed-rate home loan?
Consider current mortgage loans before refinancing
If you have had your current home loan for 15 or 20 years, you are usually paying off more principal on your loan than at the beginning of a new home loan. Homeowners with an older mortgage should carefully consider their options when it comes to refinancing. Shorter-term products are available such as a 15 or 10-year mortgage that might work for long-term owners who want to take advantage of low rates but may not want to extend their mortgage payments for another 30 years.
Adjusting the length of your home loan
If your goal is to reduce your monthly payments, you may want to refinance into a 30-year, fixed-rate mortgage. Lengthening your loan term will reduce your monthly payments. Some lenders offer a 40-year home loan to keep payments even lower. Just remember you will be paying more in interest over the long term if you lengthen your home loan.
If you can handle slightly higher mortgage payments, you may want to consider shortening the term of your mortgage into a 15 year home loan. These loans typically have lower interest rates than longer term loans and you will pay off your mortgage faster. In addition, you will pay less interest over the entire mortgage loan.
For example, principal and interest on a 30-year, fixed-rate home loan for $200,000 at 5% will cost $1074 per month. A 15-year, fixed-rate home loan for that amount, at 4.5%, will cost $1530 per month. If you can find an additional $450 in your budget each month, you can pay off your home more quickly and reduce your overall interest for the home loan.
Discuss your mortgage refinancing options with a lender and gather refinancing information to make the decision about which home refinance will best meet your goals.
