The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: shanaling on February 26, 2020, 09:20:14 PM
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When you refinance do you stay with the same mortgage term, e.g. if you already had a loan for 10 out of 30 years, you refinance into a 20 year loan and compare the savings in interest? It gets even more confusing when you have prepaid some principal and shortened your mortgage term that way.
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It's totally up to you. The best option depends on your goals and financial situation.
A longer term means a lower payment for a longer period of time, and usually a higher interest rate.
A shorter term means a higher payment for a shorter period of time, and usually a lower interest rate.
I agree it gets hard to compare options when you have a non-standard number of years left on your existing mortgage (say you have 22 years left and are considering refinancing into a new 20 year mortgage, for example). When I did it I usually built spreadsheets to help me figure out what was best. If you do that, be sure to account for the entire period (22 years in this case) so that you capture the effect of not having a mortgage payment in years 21 and 22 in the refinance case. I also usually considered the effect of taxes, but now mortgage interest is not as deductible as it used to be with the new tax law, so that is probably not too big of a consideration. Also, account for any transaction costs in the analysis (closing costs, escrow costs, etc.).
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Nope, I kick it back up to 30 years since the mortgage arena is the only place you can get a non-callable 30-year loan below 4%.
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Depends on your goals. I just refinanced from a 30 to a 20 (only 2 years in). So, I shaved 8 years off my mortgage and got a lower rate. And in the end, my monthly payment only went up about $90 a month. But then my goal is to get my mortgage paid off, the faster the better.
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I'm reading your question as more of a technical one, if it's required to stay on the remaining term. If that's the question, the answer is no. A refi starts over with whatever balance (higher if you want cash back, lower if you want to put cash in) and whatever term you choose.