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Many borrowers use a refinance to shorten the term of the mortgage. And brace yourself: Even at low rates, a shorter term means a higher monthly payment. The benefit is that you'll build up equity faster and pay far less in total interest over the life of the loan. Consider Jim Neill, 48, a stock broker and his wife Merrilyn, 55, a psychotherapist. Recently, the couple took out a 15-year fixed-rate loan at 3.75% to replace an 5.13% ARM with a 30-year term. Their monthly payment jumped by $200, but now they will own their own home outright by the time they retire. In addition, the total interest on the 15-year loan will come to $95,447, vs. $222,234 on the remaining life of the ARM -- and that assumes their adjustable rate would have held steady at its current 5.13%. "This is forced savings," says Jim. "When we retire, we can scale down and take equity out of the house." BUT, MY idea is this - if you don't want the higher payments of a 15 year mortgage, simply make 1 extra house payment each year. This will, in effect, cut your mortgage time almost in half, and if you do this faithfully - you will pay off your 30 year loan in approximately 17 years!! The benefit to this is, you are not obligated to make the extra payment! When cash is short - make your normal payment. When you have extra funds, you can send in that extra payment once a year, and still pay off your loan in almost 1/2 the time!! You save yourself a bundle of interest when you do this too!! |
