According to an article on usatoday.com homeowners who refinance are looking to shorten the terms of their current loan. More Americans are tightening their belts when it comes to their finances and are looking to eliminate their debt, including their home loan. While at one time they might have gone for the lowest monthly payment possible so that they could invest the rest or spend it on a higher class lifestyle, in today’s economic climate they are instead looking to pay off their loan early.
According to the article, Freddie Mae reported during the first quarter that of those homeowners refinancing their home loan 34% of the loans where for reduced year terms of 15 or 20 year terms. Lending tree has also reported that shorter term loan inquires are on the rise and they have seen about a 30% increase in requests for reduced term loans.
Keith Gumbiner vice president of HSH Associates said:
Reducing the term of your mortgage could save you “tens or even hundreds of thousands of dollars in interest costs,” Because rates on 15-year mortgages are so low, some borrowers may be able to refinance to a shorter term without increasing monthly payments, he says.
The same article goes on to talk about why so many homeowners are still not refinancing their home loans. While many of those that can refinance are shortening their loan terms there are thousands of frustrated homeowners across the country that would like to refinance their loans but are unable to. With higher credit standards required for loans today, many homeowners simply do not qualify for a refinance. Additionally, to qualify for the lowest rate loans you need to have 20% in home equity value which many homeowners do not have.
The cost of refinancing can also be prohibitive for some. If you are looking to refinance your current loan you can expect to pay between 3% and 5% of your principal in closing costs.
If you are unable to qualify for a refinance there are other ways you can work to pay off your loan early. First, if you are looking to eventually refinance you can improve your credit score by paying down your debts and making sure you make on time payments. Additionally, you can start making a larger mortgage payment each month putting your additional funds towards principal.