Refinance and keep my term
Refinance to a new mortgage rate » but keep your old mortgage term
Refinance Without Changing Your Mortgage TermIt's a common myth that you must reset your mortgage to 30-years when you refinance |
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Refinancing your mortgage without extending it
You don't have to reset your mortgage term to 30-years
It's a common myth that when you refinance your mortgage, you have to start all over with a new 30-year term, effectively extending the length of your loan. You may have even been told this by a loan officer or broker. However, this just isn't true. There are lenders that can match your current mortgage term so that you keep the same length of loan even after refinancing.Keeping the same term makes comparing rates easier
When you are comparing mortgage refinance rates, it's easier to decide whether you should go with a particular offer when the loan term matches your current term. It's more of an "apples to apples" comparison this way. For example, if you have 26 years left on your current loan, then comparing rates on a refinance with a 26-year term gives you a clear "apples to apples" comparison rather than comparing rates on a new 30-year refinance.
For example, if your current mortgage payment is $2500 per month, and you find a refinance rate that would result in a lower payment of $2100 per month without extending the length of your loan, then it's a simpler decision on moving forward with the deal (you'll just want to look at closing costs and make sure they're not too high).
On the other hand, if the lower payment of $2100 per month was with a refinance into a new 30-year term, it might still be a good offer, but you would have to do more analysis to figure out if it's worth it. You would need to look at more than just the closing costs. For example, you would want to calculate the total interest cost over the 30-years compared to what the total interest cost would be if you just stayed with your current mortgage.
Can I refinance and customize the term?
I want to refinance but slightly change the number of years left
You can refinance and customize the term (number of years) on the mortgage. For example, let's say you currently have 27 years left on your mortgage. You could decide to refinance and reduce the term to 26 or 25 or even 23 years if that's what you wanted to do! You can also slightly extend it (28 years) if that makes sense for your situation.Some people like to "fine-tune" the length their refinance loan
While not very common, some people like to optimize their mortgage term in a fine-grained manner so that they're achieving specific goals, such as lowering their monthly payment and simultaneously reducing the length of their loan.
For example, suppose you have 27 years left on your current mortgage and you are looking to refinance because rates are lower. One of your goals is to lower your monthly payment, but it would be nice if you could also shorten the life of your loan at the same time. You find a lot of refinance offers for 15-year and 20-year terms, but they result in a higher monthly payment due to the shortened term. Instead, you might find a "sweet spot" refinance offer with a loan term of "24 years" that still results in lowering your monthly payment. So, now you can have your cake and eat it too! You're able to lower your monthly payment AND shorten your loan term from 27 years to 24 years.