Refinancing: Consider Mortgage Term
Right now, home mortgage interest rates are at rather low levels. This is making refinancing a rather popular option right now. Indeed, as mortgage applications surge, it is refinancing that is the most popular reason for applying for a home mortgage loan. But if you are considering refinancing (as I am), consider mortgage term.
You don’t have to get a 30-year fixed mortgage
Most people, when they refinance, do so to a 30-year fixed mortgage. In combination with the lower home mortgage interest rates, the longer payment term can result in lower monthly mortgage payments. However, it is not necessary to get a 30-year fixed mortgage. You can get an even lower mortgage rate on 15-year fixed mortgage. And it doesn’t usually cost much more, reports Trees Full of Money:
The best part is your monthly payment will only increase slightly. At current interest rates, the monthly payment on a 15 year fixed rate mortgage for a $300,000 is roughly $2450. Stretching the mortgage out to 30 years will only reduce your monthly payment to about $2000 a month.
You don’t even have to do a 30-year fixed mortgage or a 15-year fixed mortgage. I am thinking about refinancing to 20-year mortgage. It would shorten my mortgage loan term, help me build home equity a little faster, and save me money in interest payments. I’d like to do a 15-year mortgage, but I think that it might be too much in light of the other personal finance New Year’s resolutions.
At any rate, if you are considering taking advantage of lower home mortgage rates to refinance your home, think about the mortgage term, and whether you can handle slightly higher payments. This can help you save money in the long run, as well as build home equity that might come in handy down the road — whether you are selling or whether you decide to get a line of credit.
