Posted by Christine Owens on May 11, 2017
Should You Refinance to Pay Your Mortgage Off Faster?
If you are already a homeowner with a mortgage loan, but don’t really want to wait 30 years to have your home paid off, there are ways to pay down your loan more quickly. While there are certainly a variety of ways to do so, one of the most effective and easy ways to pay your loan down more quickly is to refinance. Depending on how much time is left on your loan, it may be beneficial to refinance into a shorter loan and pay slightly more per month now so that you can pay your loan off more quickly.
Many lenders have a variety of loan products from which to choose so refinancing into a 10, 15 or even 20 year mortgage will ultimately save you money in the long run and allow you to own your home outright sooner. If you currently have a 30 year mortgage but are considering a 15 year mortgage you may be thinking, “That’s a nice idea but I can’t afford to double my monthly mortgage payment by cutting my loan length in half.” Fortunately, as Forbes points out, your mortgage payment will increase but it will not double in the way that you think, “Contrary to popular misconception, a 15-year loan isn’t double the payment of a 30-year loan. Yes, you’ll face a larger payment — but not double. Why? Your mortgage payment consists of four factors: Principal, interest, taxes and insurance. Your property taxes and homeowner’s insurance will stay the same, regardless of the length of your loan, which means the only two variables that change will be the (remaining) principal and interest. Each month you’ll divert a larger chunk of your immediate earnings towards your interest and principal payments. However, your total interest paid over the life of the loan will drop, for two reasons: First, you’ll be reducing principal more quickly, and second, 15-year and 20-year loans are usually granted at a lower interest rate.”
Though you could simply make larger payments each month without refinancing and still pay your loan off more quickly, there are more advantages to refinancing into a shorter-term loan. The primary advantage is that you will likely get a lower interest rate than a traditional 30-year fixed mortgage and depending on when your first loan was originated, you may get a significantly lower interest rate in general. And, because you get a lower interest rate you will pay less over the life of the loan. If you are considering ways to shorten the length of your loan, speak to a qualified and knowledgeable mortgage lender who can help you find the right mortgage refinance product for your unique needs.