Refinancing Without Restarting the Clock

How to ReFi Your Mortgage without 30 More Years of Payments

Refinancing Without Restarting the Clock
December 29, 2016

Mortgage rates have been rising lately, but it's not too late for you to refinance at what are still historically low levels. What do you do if you are interested in refinancing but do not relish the thought of making another thirty years of payments on your home? Consider refinancing into a shorter loan term, such as a 15-year fixed loan.

Monthly payments will be higher (45% is a reasonable estimate), since the loan payment period must be compressed into half as long of a term. However, if you can manage the increased payments, you can save significant money on interest compared to your existing loan. Under the current rates, homeowners can save over 60% in total interest paid by refinancing to a 15-year loan instead of a 30-year loan.

Keep in mind that monthly mortgage payments have a principal component and an interest component, and that your payments in the early years are primarily interest payments. Given a $300,000 mortgage loan at 4%, after you have made payments for ten years you would still have 79% of the original loan principal remaining on a 30-year loan. Cut that to a 15-year loan term and only 41% of your original loan remains after ten years.

To find out if refinancing is right for you, start by finding the best loan terms on a 15-year mortgage and estimate the closing costs and other fees associated with the loan. Next consider how long you plan to stay in the home — the longer you plan to stay, the more likely it is that refinancing is a better option for you. Compare the interest savings over the life of your new loan with the cost of getting the new loan and find the break-even point. Take into account the higher loan payments. Discuss the calculations with your preferred lender if you need help with your decision.

If you cannot afford the higher loan payments, you can shorten your payment time simply by paying just a bit extra each month and designating that payment to be applied to the principal (assuming your mortgage loan terms allow prepayment without penalty).

However, if you can afford higher payments and are able to find suitable loan terms, you can combine both mechanisms and shorten the time on a 30-year refinance. By refinancing to a lower interest rate and adding extra payment toward the principal during the new loan, you can still enjoy interest savings while holding your monthly payment steady. Simply apply the savings you receive from your new lower monthly payment toward the principal and you will save thousands of dollars in interest payments and cut years off your overall loan term.

Consider refinancing and higher payments in terms of your overall cash flow. It is not necessarily best to pay down your mortgage ahead of time if you are taking away from other needs to do it — for example, not taking full advantage of your work 401(k) and retirement programs, raiding your emergency fund, or failing to set up funds for your children's college education.

If you have made all the proper considerations and calculations and decide that refinancing to a shorter loan term is right for you, by all means take advantage of the currently low interest rates. Even though you have heard it many times before, it really is true — these low interest rates will not last forever.

If you are interested in refinancing your home loan, visit

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Crystal | 12.29.16 @ 18:47
I never think in terms of length of loan. Always monthly payment. This was a good reminder. Thanks!
Nancy | 12.29.16 @ 19:22
I did this several years ago and knocked about 12 years off of my mortgage. It was one of the best money-saving moves I ever made.
Zanna | 12.29.16 @ 23:17
We are considering a refinance on our house, and the shorter loan terms make a great deal of sense to me! I am going to show this to my husband and discuss it.
$commenter.renderDisplayableName() | 12.05.20 @ 03:18