The Benefits of Mortgage Refinancing With a Shorter Loan
With rates the way they are, it can be a perfect time to refinance your home mortgage loan to take advantage of a better rate. Not enough equity in your home? No problem! You can still refinance with a shorter term loan with low equity or less than perfect credit. Though you'll have higher monthly payments, you will reap the rewards much quicker with a shorter loan term.
When it comes to mortgage refinancing, it's all about the interest. The longer you pay on your loan, the more interest you have to pay. Makes sense, right? The average mortgage loan is 30 years. Imagine the interest money you would save if you refinanced your loan for 15 years!
Provided that you have a solid monthly cash flow, a short term refinance can be a wise move. This is due in no small part to the increased monthly payment amount. On the plus side, many short term refinance loans have the same interest rate as their long term counterparts, so you will pay the same interest for a shorter period of time resulting in saving a nice amount over the life of the loan.
If equity is your goal (and it should be), a short term mortgage refinance should be a definite consideration. Your equity will build much more quickly because you are paying the principal amount of the loan faster - and equity is based on the amount of principal you have paid down. Higher payments means that you're paying more on the principal which means - you guessed it - more equity, more quickly.
Why is equity important? Equity is, in the simplest terms, the value your property has to you personally. When you have higher equity, it means for the most part that you are that much closer to owning the property outright. It means that you have less debt associated with the property and that increases its value for such things as educational expenses or home improvement.
Though it may be tough to pay a higher monthly bill, you will be paying the loan off in half the time. That means you'll have more time in the long term to spend your money on other things, such as retirement plans or even vacations.
If the option is available to you, you might want to consider refinancing your mortgage loan into a shorter term loan. You will save on the loan value in the long term since you'll be paying more of the principal every month and thus reducing the total interest amount you are responsible for. You'll earn your all important equity much more quickly and most of all, the burden of having a mortgage loan at all will be off your shoulders in half the time.
Is a shorter term mortgage refinancing loan the right solution for you and your situation? Only you and a mortgage loan specialist or financial advisor can answer that question. You won't know until you ask!