The Benefits of a Shorter Term Loan
With rates on the downswing, refinancing your home mortgage loan could land a better interest rate. Refinancing with a short-term loan can be accomplished with low equity and a less than perfect credit rating. Monthly payments will be an increased amount, but the rewards include faster payoff and a lower interest rates.
Mortgage refinancing is about finding the best and most affordable interest rates. Long-term loans take time to pay off and more interest is paid out. An average mortgage loan is on a 30-year schedule. The amount of savings with a 15-year loan can lend significant savings over the duration of the loan.
Provided that you have a solid monthly cash flow, a short term refinance can be a wise move. This is due in no small part to the increased monthly payment amount. On the plus side, many short term refinance loans have the same interest rate as their long term counterparts, so you will pay the same interest for a shorter period of time resulting in saving a nice amount over the life of the loan.
The goal is to create equity. Short-term mortgage refinancing makes this goal possible. Equity builds quickly because more is applied to the principal amount of the loan. Equity is based on the amount of principal that has been paid down over the terms of the loan. The increased payment schedule allows a larger portion of the funds to be applied directly to the principal portion of the loan.
Why is equity important? Equity is, in the simplest terms, the value your property has to you personally. When you have higher equity, it means for the most part that you are that much closer to owning the property outright. It means that you have less debt associated with the property and that increases its value for such things as educational expenses or home improvement.
A higher monthly payment may be more difficult but the loan will be paid in half the time. This leaves more funds available for future endeavors associated with vacations and retirement plans.
Short-term refinancing of an existing mortgage loan will save money, increase equity, reduce the amount of interest paid and decrease the loan principal. Equity will build quickly. Less interest will be paid to finance companies over time and refinancing is an option that enhances the process of reducing or eliminating debt while building equity. The burden of a long-term loan is removed.
Is a shorter term mortgage refinancing loan the right solution for you and your situation? Only you and a mortgage loan specialist or financial advisor can answer that question. You won’t know until you ask!
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