Is it always the best idea to pay off a mortgage over 30 years? While it may help a homeowner lower his or her monthly payment, it can mean paying more in interest and waiting several more years to build sufficient equity in the home.
The question is…how can a homeowner reduce the amount of time it
takes to pay off a mortgage by refinancing his or her loan? A few
methods for reducing your mortgage term are explained below.
Refinance From A 30-Year Mortgage To A 15-Year Mortgage
For those who don’t want to wait any longer than necessary to pay off
their home loan, it may be possible to refinance to a shorter-term
mortgage. Instead of taking 30 years to pay off the loan, a homeowner
can opt to pay off the loan in 10 years or 15 years. The shorter the
term, the less interest will be paid on the loan.
Get A Lower Interest Rate With A Shorter-Term Mortgage
Another good reason to shorten a mortgage term is because it could
lower the loan’s interest rate. Instead of paying 4.5 percent over 30
years, it may be possible to pay 4 percent over 15 years. This gives the
mortgage holder the chance to build equity in the home faster as they
are paying more of the principal balance with each payment. While a
mortgage holder can pay more than the minimum amount on a longer-term
mortgage each month, it could still end up costing more overall due to
the terms of the loan. Be sure to ask your mortgage professional about
your options here.
Stop Paying Mortgage Insurance
Those who are paying mortgage insurance could be paying $200 or more
per month for nothing more than the right to protect the lender against
default. Homeowners who could qualify for a conventional loan should
attempt to refinance to a conventional loan if possible to avoid making
this payment. Instead of going toward mortgage insurance, put that money
toward the principal balance on the loan. There are, of course, risks
involved with this approach so be sure to fully discuss them with a
How Can Someone Refinance A Loan?
Now that you know how to pay off your mortgage faster through a
refinance, how can someone go about refinancing a home loan?
Fortunately, refinancing is similar to the process of securing the
home’s first loan. All a borrower will need to do is find a lender that
he or she wants to work with, find an offer that works for that borrower
and then close on the deal. Although there may be closing costs
associated with the new loan, some lenders may be willing to waive some
or all of them on a refinance.
Paying off a mortgage as soon as possible can help a borrower save
money while building equity in the home at a faster pace. This gives a
homeowner financial strength as well as the flexibility to sell the
house in the future without worrying about losing money in the deal. To
find out more about refinancing options, talk to a mortgage lender.