Interest rates are dropping all over the country, and with the lower rates come a wave of people trying to refinance their mortgages. There has not been a better time to take the leap into refinancing, with interest rates at an almost 50 year low everybody stands to save money. What most people don’t know, however, is that there are other ways to save money on a refinanced mortgage. By choosing a shorter term when you start the refinancing process you stand to save even more money and reap some additional benefits. Here are three reasons why you will save money on a mortgage refinanced to a shorter term.
Own Your Home Outright in a Quicker Amount of Time
The reason everybody gets a mortgage in the first place is because nobody has enough excess funds to purchase a home in full. The most gratifying part of a mortgage is the day you make your last payment and take full ownership of your house. Knowing that you are no longer indebted to the bank allows a sense of freedom and choosing a shorter loan term gets you there faster. Being a full home owner has benefits (better credit, easier to get loans, owning collateral) which you will be able to take advantage of for a longer period of time.
Save More Money over the Duration of the Mortgage
It takes a while to realize it because of the cost of the monthly payments, but you actually save money on a shorter mortgage even though the monthly payments are higher. The interest rates are lower and you can be paid off up to 20 years earlier, saving you upwards of $50,000 over the duration of your mortgage. It may cost you more each month, but that money is going to the same place in the end, and by the time you’re finished paying off your mortgage you will have saved almost a year’s worth of income. You can use a refinance calculator like the one at www.RefinanceCalc.org to determine how much things will change.
Lower Risk Means Lower Rates
The shorter the term of a mortgage is the more willing a lender will be to give out a better rate. Mortgages that are refinanced to be paid off in a shorter period of time carry with them less risk than a mortgage that lasts for 30 years. If you opt for a shorter term then the lender will be more willing to grant you a favorable rate because they will be getting all their money back in a shorter period of time. You can get interest rates at almost a full percent lower than you can get on a 30 year mortgage, and even though your monthly payments will be larger it will be going almost entirely towards your mortgage and not towards interest.
Refinancing your mortgage is a smart move, especially with the low rates currently being offered, and if you refinance then you should consider taking a shorter loan term. It may be tempting to just take another 30 year mortgage term but if you are interested in saving more money, owning your home quicker and getting a lower monthly interest rate then you should talk to your broker about 10, 15 or even 20 year loan terms.