Re Financing With Shorter Loan Terms

Re Financing With Shorter Loan Terms



Re-Financing with Shorter Loan Terms
For some homeowners there is​ the​ possibility of​ making a​ sound re-financing decision even when interest rates are stagnant,​ the​ homeowner does not have a​ great amount of​ equity in​ the​ home and the​ homeowner’s credit score has not increased significantly .​
You might wonder how this is​ possible .​
It certainly isn’t an​ option for every homeowner but those who can afford to​ pay significantly more each month can yield huge financial benefits by refinancing their loan terms from 30 years to​ 15 years .​
The benefits which may result from this type of​ re-financing include a​ significant overall savings,​ the​ ability to​ gain equity quicker and the​ ability to​ repay the​ balance of​ the​ loan quicker .​
Higher Monthly Payments Increase Overall Savings
Re-financing with shorter loan terms is​ definitely not an​ easy option but homeowners who have a​ large monthly cash flow or​ who receive a​ sizable promotion at​ work might be able to​ consider the​ possibility of​ re-financing by decreasing the​ loan terms from 30 years to​ 15 years .​
The result of​ this type of​ re-financing will be a​ significantly higher monthly payment which is​ not conventional but can be worthwhile if​ it​ meets the​ needs of​ the​ homeowner .​
In particular this type of​ re-financing option is​ a​ viable solution if​ the​ homeowner can afford the​ increase in​ monthly payments and has an​ overall goal of​ reducing the​ amount of​ interest they will pay over the​ course of​ the​ entire loan.
Reducing the​ amount of​ interest is​ critical to​ the​ overall savings plan because the​ homeowner does not have the​ option of​ reducing their original debt but they can drastically reduce the​ amount of​ interest paid over the​ course of​ the​ loan .​
Consider two loans with a​ 5% interest rate .​
One loan is​ to​ be repaid over a​ period of​ 15 years while the​ other loan is​ to​ be repaid over a​ period of​ 30 years .​
It is​ clear that in​ this example,​ the​ homeowner with the​ 30 year mortgage will pay more during the​ course of​ the​ loan .​
Equity Gained Quicker
Another major advantage to​ re-financing by reducing the​ loan terms from 30 years to​ 15 years is​ the​ ability to​ gain equity in​ the​ home at​ a​ significantly faster rate .​
The amount of​ the​ equity in​ the​ home is​ equal to​ the​ amount of​ the​ principal loan which has already been repaid by the​ homeowner .​
Under a​ conventional loan,​ the​ homeowner typically pays a​ combination of​ principal and interest with their monthly payments .​
The amount of​ the​ principal which is​ repaid on​ two mortgages for the​ same amount and with the​ same interest rate will be different if​ one loan is​ a​ 30 year term and the​ other is​ a​ 15 year term .​
The homeowner with the​ 15 year mortgage will be paying more of​ the​ principal each month and will therefore be accumulating more equity each month .​
Gaining equity in​ the​ home quicker is​ ideal because it​ gives the​ homeowner greater flexibility .​
The equity in​ the​ home can be used for a​ number of​ purposes including home improvement projects,​ travel,​ educational pursuits and small business ventures .​
Loan Repaid Quicker
One advantage of​ shortening the​ loan terms,​ which cannot be denied by some homeowners,​ is​ the​ ability to​ repay the​ loan quicker by re-financing to​ shorten the​ loan terms from 30 years to​ 15 years .​
In this case the​ homeowner will have completely repaid the​ home loan a​ full 15 years earlier than they would have under the​ conventional loan .​
This is​ advantageous because it​ can enable the​ homeowners to​ enjoy living mortgage free a​ full 15 years earlier .​
Once the​ mortgage is​ fully repaid,​ the​ homeowner may be able to​ make significantly more sizable contributions to​ his retirement plan .​
Some homeowners may even be able to​ afford to​ retire once their mortgage is​ repaid in​ full .​
This ability can have a​ significant impact on​ the​ quality of​ life for the​ homeowner .​
Homeowners may find themselves with the​ financial means to​ travel,​ assist family in​ educational pursuits or​ invest in​ a​ small business .​




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