In order to lower overall home loan costs some homeowners have turned to short-term mortgages, like 15 or 20-year fixed rate mortgage terms on their home loan. Some homeowners have refinanced to the shorter mortgages as well since mortgage rates have been quite low over the past months and have afforded certain homeowners the opportunity to lower their interest rates and, in some cases, their monthly mortgage payment.
However, homeowners who are turning to short-term mortgages need to look at their financial situation before they proceed as these types of home loans are not beneficial for every homeowner. Over the past months, homeowners who have benefited from these types of mortgages are those who can either afford the costs that come with refinancing, not to mention who are in a position to benefit from refinancing and gain a lower interest rate, or those who can afford a higher monthly mortgage payment.
Some homeowners turn to short-term mortgages so they can erase their mortgage debt faster, which also allows them to lower their overall home loan costs. While there are some cases where homeowners refinanced to shorter mortgage terms and were able to lower their monthly mortgage payment as a result of the drop in their interest rate, this is not a common occurrence for every homeowner.
Financial advisors caution homeowners against turning to short-term mortgages if they are not in a financial position to obtain a lower mortgage interest rate, afford potential higher monthly mortgage payments, or if they cannot meet the costs that come with refinancing. In recent months, homeowners seeking a lower monthly mortgage payment through refinancing have turned to longer mortgages, like a 30-year fixed rate mortgage, but have done so knowing that they may pay more costs overall.
However, homeowners who are considering refinancing essentially must look at their financial standing to see which home loan goal they seek through refinancing and then proceed if these costs and goals can be met.