If you’re fed up with your mortgage debt, you could pay off your debt faster if you refinance your mortgage to a shorter-term loan. You’d likewise pay a lower interest rate. However, while this move has its benefits, it’s not for everyone. Answer the following questions to aid you in deciding if this move is appropriate for you.
Is the Interest Savings Worth Higher Monthly Payments?
Although refinancing to the shorter-term mortgage would really save you cash on interest, you’d have to determine if it’s justified by higher monthly payments. For instance, if you have a fixed-rate mortgage worth $200,000 with a 30-year loan term and 4% interest, it would cost you approximately $666 of interest every month. Conversely, your monthly interest would only be around $498 every month if you have a 15-year home loan. That’s evidently a huge difference, but you’d likewise have to consider the worth of the additional cash you’re spending on payments if you chose to invest it instead.
Are You Fine with Missing Out on a Higher Tax Break?
You could ease your worry of paying all that interest on your 30-year mortgage by deducting it during tax season; just make sure that you itemize them properly, says a refinance expert in Baltimore. That said, if you anticipate your taxes to increase when you’re older and already have a sufficient nest egg, losing this significant tax break could make a substantial difference in your tax bill.
Could You Really Afford the Higher Payments?
Reducing your loan term raises your monthly payments, which means that you have to understand exactly how this is going to impact your budget. For instance, your payments would be around $955 if your mortgage is worth $200,000 and you refinanced to a fixed-rate, 30-year old loan at 4% interest, provided that you’ve put down a down payment of 20%. On the other hand, refinancing to a 15-year fixed rate loan on a 3% interest rate would raise your monthly payments up to $1,400.
If you are really set on relieving yourself of mortgage debt, then refinancing to a shorter loan term could help you do just that. Just make certain that you have assessed all the potential drawbacks and benefits so that you could avoid making the wrong decision.