Mortgage interest rates have dropped significantly over the past few years and many homeowners and investors are taking advantage of them to save money on payments and interest. If you’re in the market to refinance for a lower rate, I encourage you to consider shortening your loan term as well. You won’t necessarily end up with a lower monthly payment, it might even be a little higher, but you’ll pay off your home faster and save a ton of interest over the life of the loan.
Another great benefit of a shorter-term loan, in addition to the lower rate, is that you’ll build equity much faster. Growing your home equity grows your net worth, so you can look at your equity like a savings account that grows as your property appreciates and your loan balance decreases.
The combination of the shorter term and rate discounts you get with a 20-, 15-, or 10-year loan over a 30-year loan results in a ton of interest saved over the life of the loan. Plus, you get your house paid off a lot faster too! If our borrower opts for the 15-year loan, he’ll save over $45,ooo in interest versus continuing to pay on his existing 20-year fixed. If he opts for the 10-year, he’ll save over $67,000 versus his current loan. Although the payment for the 10-year option is nearly $200 a month higher than his current payment, unless he is super tight financially, he could work with us to trim other things in his finances to be able to afford the slightly higher payment.
If you’re in the market to take advantage of today’s low rates and refinance an existing loan, consider taking out a shorter-term loan, such as a 15-year or 10-year fixed. Yes, the payment is higher than a 30-year fixed loan, but consider it an investment in your net worth. You’ll put tens (or even hundreds!) of thousands of dollars back into your pocket instead of sending it to you lender. Consider cutting out some unnecessary expenses to make up for the increased house payment. Believe me, your net worth will thank you!Tweet