Real Estate Innovation

The Benefits of Mortgage Refinancing With a Shorter Loan

With interest rates decreasing, refinancing your home mortgage loan may have a better interest rate than your current long-term loan. Short-term loan refinancing is achievable with low equity and a less than perfect credit score. Monthly payments will increase in amount, but the loan will be paid off sooner and less interest will be paid out.

When it comes to mortgage refinancing, it’s all about the interest. The longer you pay on your loan, the more interest you have to pay. Makes sense, right? The average mortgage loan is 30 years. Imagine the interest money you would save if you refinanced your loan for 15 years!

Short-term refinancing requires a consistent monthly cash flow due to the increased monthly payment established in the terms of the loan. Short-term refinance loans may have the same interest rate as long-term counterparts, but the interest rate will be paid for a shorter duration and decreases the amount of interest paid on the loan. This saves money over the life of the loan, which is much shorter.

Equity is the primary goal of refinancing. With short-term mortgage refinancing this goal is reachable. While equity builds more of the payment is applied to the principal portion of the loan. Equity is based on the principal that has been paid down as the payments are made. An increased payment amount allows a larger portion of the funds to go directly on the principal portion and decreases interest that is accrued.

Why is equity important? Equity is the monetary value of your property. Higher equity brings you much closer to owning the property outright. There will be less debt associated with the property, which increases the value. Home improvements and educational expenses are more easily financed as a result of the higher equity.

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!