Many homeowners have been able to take advantage of a lower interest rate when they refinanced their home loan. However, some are turning to shorter mortgage terms in order to erase their mortgage debt faster and, for certain homeowners, they are doing so at a much smaller cost overall.
There have been reports that more homeowners are taking advantage of home loans like a 20-year mortgage or 15-year mortgage in order to either gain a more affordable payment and interest rate or to simply lower costs on their home loan. For some homeowners, a shorter mortgage term may bring a higher monthly mortgage payment but it will be more cost-efficient in the long run since a shorter-term will not bring a higher cost due to interest.
Essentially, homeowners that can afford the cost of refinancing and are in a good financial position have been able to lock in lower home loan interest rates on short-term mortgages and erase their home loan debt years ahead of schedule. Typically, homeowners may choose a 30-year fixed rate mortgage which can be quite affordable but homeowners end up paying a higher total cost, in most cases.
Yet, there are also reports that caution homeowners against refinancing to a short-term mortgage. While there have been instances where homeowners have gotten a shorter lifespan on their home loan and lowered their monthly home loan payment, in most cases where homeowners refinance for a shorter term on their home loan a higher monthly payment is required.
For homeowners who may be unable to meet a higher monthly mortgage payment there are suggestions of refinancing to a longer-term mortgage, like a 30-year fixed mortgage, which comes with lower monthly mortgage payments in many cases, and then simply making more than the minimum monthly payment. Homeowners who concentrate more money towards paying down their principal can get out of mortgage debt faster and at less cost overall even if they have a long-term mortgage. However, homeowners who seek to pay off their loan early may be penalized, so this is something that needs to be considered, and any time a homeowner plans to refinance they must make sure that it will be in their best financial interest to do so and they can afford the costs.