The Benefits of Mortgage Refinancing With a Shorter Loan

With rates on the downswing, refinancing your home mortgage loan could land a better interest rate. Refinancing with a short-term loan can be accomplished with low equity and a less than perfect credit rating. Monthly payments will be an increased amount, but the rewards include faster payoff and a lower interest rates.

When it comes to mortgage refinancing, it’s all about the interest. The longer you pay on your loan, the more interest you have to pay. Makes sense, right? The average mortgage loan is 30 years. Imagine the interest money you would save if you refinanced your loan for 15 years!

Provided that you have a solid monthly cash flow, a short term refinance can be a wise move. This is due in no small part to the increased monthly payment amount. On the plus side, many short term refinance loans have the same interest rate as their long term counterparts, so you will pay the same interest for a shorter period of time resulting in saving a nice amount over the life of the loan.

Equity is the primary goal of refinancing. With short-term mortgage refinancing this goal is reachable. While equity builds more of the payment is applied to the principal portion of the loan. Equity is based on the principal that has been paid down as the payments are made. An increased payment amount allows a larger portion of the funds to go directly on the principal portion and decreases interest that is accrued.

Why is equity important? Equity is the monetary value of your property. Higher equity brings you much closer to owning the property outright. There will be less debt associated with the property, which increases the value. Home improvements and educational expenses are more easily financed as a result of the higher equity.

A higher monthly payment may be more difficult but the loan will be paid in half the time. This leaves more funds available for future endeavors associated with vacations and retirement plans.

Short-term refinancing of an existing mortgage loan will save money, increase equity, reduce the amount of interest paid and decrease the loan principal. Equity will build quickly. Less interest will be paid to finance companies over time and refinancing is an option that enhances the process of reducing or eliminating debt while building equity. The burden of a long-term loan is removed.

A mortgage loan specialist or financial advisor can provide information about short-term mortgage refinance loans that can help you build equity and free up cash flow.