Pay It Down Quick - Using Refinancing To Shorten the Length of Your Mortgage

Chances are years ago, when you took out your mortgage, you took it out for 30 years or more.  You were just starting out in life, money was tight and your salary was still on the lower side of the pay scale.  As the years have gone by, and you've moved up in your career and in life, you may find that you have extra money each month that you want to put to good use.  One of the things you may want to think about to do with that money is to refinance your home mortgage for a shorter term to help you pay off your house quicker with less overall interest payments.

Let's face it, money is hard enough to come by, and paying unnecessary interest is something that all of us can do without.   With home mortgages you will often find that the lower the term of the mortgage, the better the interest rate is.  Basically, the mortgage company is giving you a better overall deal because they don't have to wait as long for their money and their exposure is less to possible risk.  The faster you pay it off, the faster they get their money back (plus interest).

Often times, you already have the lowest interest rate you can get for your mortgage.  This is where refinancing to a lower term can help.  Typically, interest rates for 30-year and 15-year mortgages vary by as much as a whole percent point, with the average being somewhere around 0.75%.  If you find that you are into the 10th year of your 30-year mortgage it may make sound financial sense to refinance into a 15-year mortgage at the lower rate so you can take advantage of the interest rate benefits - as long as you can afford the higher monthly payments.

So why not just continue along in your present mortgage and pay extra each month?  While this was a popular option not too long ago, today many mortgage companies penalize you for making early payments.  After all, now you aren't giving them the fixed rate of return they were planning on.  This consumer-unfriendly practice is widespread and is just another reason why refinancing is one of your best moves.

It's important to keep in mind a few things before running into a refinance, however.  First, realize that you will be paying more per month since you are lowering the length of the loan.  More of this money is going to your equity, and you will see significant savings in the long run.  However, you have to be prepared financially to do it.  Don't risk losing your home if you think this might cause financial hardship down the road!  Next, make sure that you understand the fees associated with it.  As you near the end of your mortgage it may not be in your best interest to refinance depending on how long you have left.  The savings you earn in interest rate reductions may not equal what you pay to get them.

So if you find that you have a little extra cash in your pocket and are looking for a way to make a sound financial investment, consider looking into refinancing your home mortgage to take advantage of shorter terms and lower interest rates.  The money you save could go towards more important things - such as retirement or the boat of your dreams!