If you’re thinking about taking advantage of today’s low mortgage refinance rates to lower you monthly payment, one thing you may not have considered is a shorter term length. The term length of your mortgage refi is the amount of time you have to repay your home loan and determines your payment amount and amortization schedule. It’s true that shorter tem lengths mean higher monthly payments; however, the savings from paying off the loan in 15 years vs. 30 can be astronomical. Here’s an article on TheTruthAboutMortgage.com to help you decide if 15 year mortgage refinancing is right for you:
If your interest rate is currently 6.50 percent on a 30-year loan, you’d have a monthly mortgage payment $1,896.20. Assuming you refinanced to a 15-year fixed at today’s low, low, low, low rates, you’d have a monthly payment of $2,126.28. What gives? Why would I refinance into a higher monthly payment? Isn’t the point of refinancing to save money? Yes, it is. And sure, your mortgage payment would be slightly higher, roughly $230 a month more than your old payment. But if you’re in a decent financial position, you’d save over $150,000 in interest over the 15-year term as compared to the 30-year at 4.375 percent.
Be careful when refinancing with a higher payment amount that you’re not overpaying the loan origination fee or closing costs. The reason paying less for these fees is so important is that you’ll never have the opportunity to recoup your out-of-pocket expenses in the short term because your payment is going up. When your mortgage refinance results in a lower payment amount the difference your saving between your old and new payment allows you to recoup and break even on these out-of-pocket expenses. Avoiding junk fees and overpaying the mortgage broker fee will minimize the amount of cash you have to pay at closing and get you a better deal on your refi.
You can learn more about paying less for your loan origination fee and closing costs by checking out my free Underground Mortgage Videos.