Refinancing is a terrific way to reduce the expenses associated with your mortgage. If interest rates have fallen, you can refinance into a loan that takes advantage of these favorable rates. Once you start the refinance process, the amount of loan terms may be overwhelming. How do you decide between a 10, 15, 20, and 30 year mortgage? Consider these elements when picking the term for your refinance.
What are Your Goals?
Take a moment and decide what you want to obtain by refinancing your home. Do you want to pay your home off quicker? Do you want to decrease your monthly expenses? Is your main goal to get a lower interest rate?
Once you know what you are trying to achieve, you can decide which term best fits your goals. For example, if you are short on cash each month, it makes sense to refinance your mortgage into another 30 year mortgage. This spreads your mortgage balance out over another 30 years. Though it increases your overall interest expense, it means that you will have more money into your pocket each month.
If you don't want to extend the life of your mortgage, a 10, 15, or 20 year mortgage are all viable alternatives. The best selection depends on how far you are in your current mortgage. For example, if you are 8 years into a 30 year mortgage, a 15 or 20 year mortgage help you adhere to your scheduled payoff date.
To pay your home off quicker, pick a shorter term, such as 10 or 15 years. Another benefit of these shorter mortgages is that they usually have a lower rate of interest.
How Long Do You Plan to Stay in the Home?
Before making your decision, try to forecast how long you want to stay in the home. If you only want to stay a few more years, a mortgage with a shorter length helps you build valuable equity in your home. In situations where you plan on staying in the home indefinitely, it is reasonable to opt for a mortgage with a long term.
Do You Plan to Reduce Your Income in the Future?
It is essential to take into account your future income plans when picking a mortgage term. If you know that you or your spouse will be leaving the workforce to care for children, make sure to select a term with a payment that you can afford on a single income.
Retirement is another event to consider. Some retirees experience a decrease in income; again, make sure the payment is viable on your new income. Others may prefer to pay their home off before retirement. In this case, a mortgage with a shorter term is a smart choice.
Selecting the term of your mortgage is one of the trickiest parts of refinancing. It only takes a few moments to evaluate your personal situation so you can make an informed decision. For more information, contact local professionals like Liberty Escrow Inc.