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Refinancing mortgage for shorter term can bring huge savings

Refinancing into a lower rate and shorter term may not save any money immediately. But you could save a bundle in interest over the life of the mortgage.

August 26, 2012|By Lew Sichelman



You may not save any money immediately, at least not in terms of your monthly payment. But you could save a bundle in interest over the shorter life of your new mortgage. Plus, you'll build a nest egg that much faster.

The potential drawback to shorter-term mortgages is that your tax deduction for mortgage interest won't be as large. But that's a questionable disadvantage.

For one thing, interest is cash out of your pocket. Why spend the money if you don't need to?

For another, mortgage interest is not a dollar-for-dollar write-off. Rather, the deduction is based on your income-tax bracket. So if you are in the 15% bracket, you'll get back only 15 cents for every dollar in mortgage interest you spend.

Then there's the question of whether mortgage interest will remain deductible. Granted, it's a long shot right now that Congress would eliminate the benefit. But make no mistake, the once-sacrosanct write-off will be on the table if and when lawmakers ever reform the nation's tax code.

So, with the deduction argument out of the way, let's look at some possibilities using, for simplicity's sake, a loan amount of $300,000.


But you'd be starting all over again. As a result, on top of the $76,196 in interest you've already spent on the original mortgage, you'd be paying an additional $206,984 in interest over the term of the new loan.




Better yet, you are not starting over.

Shortening the length of your mortgage isn't for everyone. But if you are comfortable making roughly the same payment as you are now, it is worth considering. "Do the math," Mayfield advises.

Distributed by Universal Uclick for United Feature Syndicate.

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