How Shorter Loan Terms benefit you in the long run!
Introduction
When it comes to refinancing your mortgage, there are many factors to consider, including the length of your loan term. While most people opt for a 30-year mortgage to keep their monthly payments low, a shorter loan term can actually benefit you in the long run.
Lower Interest Rates
One of the biggest advantages of choosing a shorter loan term is that you can often secure a lower interest rate. Lenders see short-term loans as less risky, so they are more willing to offer lower rates to borrowers who opt for a 15 or 20-year loan term.
While you may have slightly higher monthly payments with a shorter loan term, you will save money in the long run by paying less interest over the life of your loan. This can add up to tens of thousands of dollars in savings, depending on how much you borrow and how long of a term you choose.
Faster Equity Buildup
An added benefit of choosing a shorter loan term is that you will build equity in your home faster. With a 30-year loan term, it can take decades to build a significant amount of equity in your home. However, with a shorter loan term, you will be paying down your principal balance faster, which means you will have more equity in your home sooner.
This can be a huge advantage if you want to tap into your home's equity down the road, either to fund renovations or to take out a home equity loan. The more equity you have in your home, the more options you will have available to you.
Pay Off Your Mortgage Sooner
The ultimate goal of refinancing your mortgage is to pay it off as soon as possible. With a shorter loan term, you will be on track to pay off your mortgage years earlier than you would with a 30-year loan term.
Not only does this mean you will have more financial freedom once your mortgage is paid off, but it also means you will save money on interest. The faster you can pay off your mortgage, the better off you will be financially in the long run.
Conclusion
While a shorter loan term may not be the right choice for everyone, it is definitely something to consider if you want to save money and build equity in your home faster. Talk to a mortgage professional to determine what loan term is best for your financial goals and situation.