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Think short term to save the most on your refinance

After rising throughout most of the first quarter, mortgage rates have been falling again lately. According to mortgage finance company Freddie Mac, as of April 11, 30-year mortgage rates had fallen to a 10-week low of 3.43 percent.

If low 30-year rates have you considering refinancing, there is one more option you should consider -- refinancing to a shorter mortgage. At 2.65 percent, 15-year mortgage rates were nearly 80 basis points lower than 30-year rates. A shorter mortgage does not make sense for all refinancing situations, but here are some questions that can help you decide whether it might be the right approach for you:

    1. Are you looking to reduce your monthly payment, or to minimize your total cost? If you are having trouble meeting your monthly payments, then a shorter mortgage probably isn't for you. However, if you have ample room in your monthly budget and are more focused on the long-term cost of the loan, then a shorter mortgage should save you money.

    1. How far into your current mortgage are you? If you've already paid down several years off a 30-year mortgage, it would be less of a stretch to switch to a 15-year loan, and the lower rates might clinch the deal.

    1. How big a savings do current mortgage rates represent? The bigger the gap between your existing mortgage rates and refinancing rates, the greater the drop you stand to see in your monthly payment. A sizable drop in rates could just make the payments on a shorter mortgage affordable.

  1. Does the mortgage tax deduction factor in? People are surprisingly reluctant to part with this deduction; but remember, you only get to deduct more by paying more interest. Lowering your rate and reducing the loan term with a 15-year mortgage should still represent an after-tax savings.

The recent drop in mortgage rates has given home owners a fresh chance to consider refinancing. Considering a shorter mortgage can help you save even more money on interest .

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