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Should You Refinance Your Existing Mortgage for a Shorter Term?

Admin • Mar 16, 2021
Discussing Finance — Costa Mesa, CA — Secure One Capital
Have you held your mortgage for some time now? Then it may be time to consider making a change to reduce your overall costs and commitment — namely, refinancing to a shorter term. Not sure if this is the right move for you? Here's what you need to know. 

Why Refinance for a Shorter Term?

Many mortgage holders consider refinancing at least once during the course of their loan. But why specifically choose a shorter mortgage? First, shorter-term loans tend to have lower interest rates than traditional 30-year mortgages. Each additional percentage saved on an interest rate can add up to hundreds or thousands of dollars saved over the course of a multi-year loan. 

Even if the interest rate itself isn't that much different, the shorter period will result in less interest accruing. The differences between accrued interest in the first few years of a mortgage may be minimal, but you can end up saving half or more on interest when you reduce the later number of years. 

Finally, you pay off your home sooner than originally expected. If the lower payments of a longer, 30-year loan were the right choice back when you bought the house, is that still the case? Do you want to retire soon and would benefit from not having a mortgage payment? Can you qualify for a better loan with your current credit? Do you earn more money and can afford to accelerate payoff? If so, explore your choices. 

What Options Are Available?

The good news for those considering a refinance is that you can tailor your term length. Although one of the most common choices is to halve the traditional 30-year loan (15-year term), you can often choose from many nontraditional lengths — including 5, 10, 15, 20, and 25 years. 

Each borrower should choose how to approach refinancing terms to suit their particular needs. If you want to pay off your home by a fixed retirement date, for instance, you might choose a specific term based on this deadline. Alternatively, those who simply want to reduce overall costs might consider reducing their payment term by five or ten years to speed up the process. 

What if You Can't Get a Shorter Term?

Of course, committing to a shorter mortgage shouldn't be done on a whim. Some homeowners are hesitant because their finances may change in the future. If you lose a job or see a slowdown in business, a higher monthly payment may become difficult. In this case, an anxious homeowner might consider traditional refinancing and then make higher voluntary payments or twice-monthly payments. 

What if you can't qualify for the shorter term based on your income or credit history? The good news is that you may still be able to qualify for a more traditional 30 year refinance, which has lower payments and allows more leeway in your debt-to-income ratio. If the interest rate is sufficiently lower now than when you bought the house, you can still save significant money.

If you find yourself limited to a longer mortgage right now, talk with your lender about what it takes to successfully get a shorter mortgage. You may be able to boost your credit score, focus on paying off other debts, or stabilize your monthly income. Make goals so that you can take advantage of a short mortgage as soon as you're ready. 

Where Should You Start?

Start by learning more about all your term options as a current mortgage holder. The refinancing specialists at Secure One Capital can help. Call today to speak with a mortgage professional about your particular loan and get on the road to money savings and a financially stable future. 

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