Home Mortgage Refinancing
Strategies: Increasing Loan Term
Home Mortgage Refinancing Strategies
There is much talk
about loan terms lately, with the 15 and 20 year mortgages
increasing in popularity. One reason for this is these
loans are notorious for building equity more quickly
for the homeowner. This also means she is paying less
interest over the life of the loan, sometimes less than
half what she would normally have paid. Increasing the
loan term, then, sounds like an exercise in padding
other peopleís pockets.
However, not everyone
can increase their payments, nor does everyone see an
increase in wages regularly. Although most people thing
their wages will rise with time, the job market is a
volatile one, and often a change in jobs, professions,
or a partnerís loss of employment can threaten a familyís
status as homeowners.
Lengthening the Term of Your Loan
If you have had life
circumstances that make lowering your payments critical,
you might consider extending the length of your loan.
For instance, although the change in total interest
payment is much greater for a traditional 30 year mortgage
than for a 15 year fixed rate loan, the payments might
be just low enough for you to get by until your financial
Is There Really a Difference?
that any monthly payment reduction, unless a far lower
interest rate is available, is not going to make that
much of a difference. An example: if you were paying
6.5% on a $100,000 15 year loan, your payments would
only be $40 more per month than with a 30 year loan.
If the interest rate is higher than your original loan,
you may end up with a higher estimated payment.
The 40 Year Loan
The 40 year loan is
gaining in popularity these days, but so is the residual
balance mortgage. This mortgage acts just like a balloon
mortgage; the payments go for 30 years at the monthly
payment rate of a 40 year loan. At the end of the 30
years there will be an unpaid balance, called the residual.
This is due at the end of the 30 years, but can also
be refinanced. Although this may seem like en enormous
amount of time to be indebted for a mortgage, remember
this homeowner expects his wages to be restored at some
point, at which time she can refinance to a more advantageous