A 30-year loan is the most popular option among homeowners. When buying a home, the expenses of a down payment, closing costs, and moving costs are significant. So when comparing 30-year and 15-year mortgages, the lower monthly payment that goes along with the long-term option is more manageable for the majority of homeowners.
After a few years in the home, there could be a time when your financial situation becomes more secure, and you are able to pay more than the minimum amount due. You can decide to make larger monthly payments and prepay your mortgage or refinance your loan to a shorter term.
Both prepaying a mortgage and switching to a 15-year loan have benefits: over the course of the loan, you will pay less interest, which can lead to massive savings.
Before you change up your payments, consider the following questions:
If you have landed in your forever home and plan on retiring there, saving money on interest is a smart option. By switching to a shorter loan, you will pay off your mortgage faster and pay less interest. Keep in mind that if you do refinance, it is considered a new loan, which comes with its own set of closing costs.
Have you been living in the house just a few years? Refinancing to a shorter-term usually occurs when know you are going to stay in the home for years to come and are a few years into the original loan. Knowing you can afford a larger monthly payment will help you get to mortgage-free living sooner.
Whether you want to prepay your mortgage or refinance your loan terms, it is important to discuss your options with your mortgage lender. Both options can come with drawbacks: some loans come with a penalty for prepaying, and refinancing requires closing costs.
By determining what you will owe now, and how many years you plan to live in the house will help you make the best decision for your financial situation.
Do you have questions about your current loan? Contact us today!
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