Home Mortgage Refinancing
Strategies: Decreasing Loan Term
Home Mortgage Refinancing Strategies
a loan term means higher payments for the borrower,
it also means many advantages. Moving from a long term
mortgage to a short term is one of the most popular
refinancing directions today, and there is a reasonóthe
short term loan offers a way for the homeowner to save
on interest payments and build up equity faster than
other loan, and often carries a lower interest rate
Equity and Interest -- Is Home Mortgage
Refinancing the Right Course
Keep in mind that
not only are borrowers building equity when they make
house payments, but they are reducing the amount of
money that the next interest charge is based on. This
is called amortization, and is why a first payment is
almost all interest and a last payment is almost all
principal. This means that if you are going to pay off
a loan in 15 years, you had better start paying down
How Reducing Mortgage Terms Can Work
In general, here is
how a reduction in mortgage terms can work for you,
based on a table published at www.rightloans.com. Letís
say you are shopping for a $100,000 loan at 6.5% interest
rate and a base term of 30 years, meaning you will save
no money on your interest over the life of the loan.
If you reduce the mortgage term to 25 years, you will
save $24,982.34. Thatís about $1,000 per year, just
for a five year difference in terms, and for that you
will only pay about $43 per month more on your payments.
The 20 Year Loan
Moving on to a 20
year loan, your savings are almost doubled! You will
save $48,606.94. Your payments will only be about $110
per month more. Moving on to the popular 15 year loan,
your savings are about $70,000 and payments about $240
more per month. The ten year loan will save you a whopping
$91,286.92! Granted your payments have almost doubled,
but if you have that kind of regular income the almost
$100,000 is money in the bank.
Your Tax Deducation
While this does mean
you will have less of a tax deduction, in most cases
it doesnít compare to the savings in interest payments.
Term reduction is also a great way to approach a cash-out
refinancing. If you reduce your term enough to save
$50,000 and only use a small portion of that for your
home improvement or other project, you are still ahead.
Seek Professional Assistance
Always ask a tax professional
before refinancing a mortgage to make sure of the impact
on you at filing time, and work with reputable lenders.
If you are ever in doubt, see a lawyer to make sure
you arenít being taken advantage of.