Elias from the personal finance blog Finance Puzzle, offered a great comment on my recent post Banks See Surge in Mortgage Financing.
Be careful about the time trap in refinancing…If you go from an original 30 year fixed with 27 yrs left to pay and then you refinance into a new 30 year fixed, you basically lost those 3 years of payments and the clock to free and clear home ownership starts over again.
This is an excellent point to remember if you do decide to take advantage of the recent drop in mortgage interest rates.
30 and 15 year term mortgages have become industry benchmarks but in most cases banks will offer 10, 15, 20, 25, and 30 year mortgages as well.
As a general rule of thumb, the shorter the financing period, the lower the interest rate will be.
It would be a shame to have three years of payments under your belt only to start over with a new 30 year mortgage.
If you have room in your budget, I strongly recommend moving from a 30 year fixed rate mortgage to a 15 year fixed rate mortgage. You’ll pay off your home in half the time, and save tens of thousands in interest payments.
The best part is your monthly payment will only increase slightly. At current interest rates, the monthly payment on a 15 year fixed rate mortgage for a $300,000 is roughly $2450. Stretching the mortgage out to 30 years will only reduce your monthly payment to about $2000 a month.
