With interest rates at historical lows, many homeowners are considering the benefits of refinancing their mortgages. While lowering your monthly payments can be appealing, restarting a 30-year mortgage could increase the total interest you’ll pay over a lifetime. On the other hand, refinancing to a shorter-term, 15- or 20-year loan could actually save you money in the long run and help you maximize your investment for the future. 

For example, on a $150,000 mortgage at 4 percent interest, you will spend more than $107,000 in interest over 30 years. A 15-year loan for the same amount, and at the same rate, would cost approximately $400 more each month, but cut your interest costs to around $58,000. While you should take into account your complete financial picture, there are several instances in which refinancing to shorter-term mortgage could benefit you. 

Your credit has improved.

If your credit score has increased since you purchased your current home, you may qualify for a considerably lower interest rate, meaning you could have only a nominal increase in your monthly payments. Paying a little more each month could save you thousands in interest and offer you a shortcut to paying off your loans.

Your income has increased or you’ve paid off other debts.

If you’ve had an increase in monthly income or you’ve freed up cash flow by paying down credit cards or other debts, refinancing could give you a way to redirect those funds toward paying off your home faster. In some situations, putting a portion of your disposable income toward a higher mortgage payment has the potential to save you more money than putting the same amount in an average interest-bearing account. 

Other considerations

Although refinancing at a lower interest rate can help you pay off your mortgage faster, it’s important to be sure you can afford the immediate costs, like closing fees. You’ll also want to assess your potential savings to determine if refinancing is worthwhile. A conversation with an experienced lender like Open Mortgage can clarify your options and provide you the information to make an informed decision. 

Visit OpenMortgage.com for more information about the loan programs available to you, or call us today to speak with a trusted loan originator committed to your satisfaction, and begin your path mortgage savings.