Refinancing a Home
Can You Save Money by Switching to a Short-Term Loan?
With homeowners losing ground in the equity-building aspect of homeownership, and with interest-rates hovering near historic lows, more homeowners are refinancing into shorter mortgages. By switching from a 30 year mortgage to a 15 or 20 year mortgage, you can lower your interest rate, and more of your monthly payment will be applied to your principal which will build your equity faster. In a typical situation, a 20 year mortgage can build the same amount of equity it would take a 30 year mortgage to build in 10 years in about half the time. And, with a 15 year mortgage it would take about a third of the time.
Rates on shorter term mortgages can be as much as a half point to a full point lower than a 30 year term. If you are able to switch to shorter term mortgage without increasing your monthly payment, you may end up savings yourself substantial interest costs while gaining back your equity more quickly.