When you first bought your home a few years ago, perhaps you started off with a 30 year mortgage. Now, you are considering refinancing and changing it to a 20 year or even a 15 year mortgage.
Shortening your mortgage term and refinancing can be a smart financial move, but before you make this decision there are a number of factors that you should consider.
Switching to a shorter mortgage will mean that your monthly payments will be higher, but you will be 100% paid off much sooner and you will save thousands of dollars in interest rates. Here are a few of the factors to consider before making this decision:
Has Your Situation Improved?
Perhaps you have moved to a higher paying position, allowing you to earn a higher income and pay off more of your mortgage every month? Or maybe you have received an inheritance, which will help you to make the payments? Perhaps your expenses have gone down and you will have more money left over from your wage?
Whatever the reason, if your financial situation has improved you might want to consider switching to a shorter mortgage. With your spare money, you will be able to make the larger payments and get your house paid off sooner.
Is The Improvement Long Term?
However, it is important to consider whether this improvement will last for the long term. Will your higher wage stay that way for the next several years? Are there any hidden expenses that you are failing to factor in?
You might be set up to repay larger monthly amounts on your mortgage at the moment, but you don’t want to set yourself up for failure in the future if your finances change.
What Are The Refinancing Costs?
Keep in mind that refinancing often comes with costs and fees, so make sure that you subtract these when you are making your calculations. It can sometimes take at least two or three years to recoup the fees, so make sure that you don’t plan on selling your home in the short term.
Can You Get A Better Rate?
One of the advantages of refinancing to a shorter mortgage is that you can sometimes get the opportunity to find a better rate. Perhaps if you have an adjustable rate you will be able to convert it to a fixed rate. Take a look at what is available and ask your financial advisor for help.
These are just a few important factors to consider when it comes to shortening your mortgage term. For more info about your home, contact your trusted mortgage professional.