Build
Up Your Equity Up to 45% Faster
Many
borrowers use a refinance to shorten the term of the mortgage.
And brace yourself: Even at low rates, a shorter term means a
higher monthly payment. The benefit is that you'll build up equity
faster and pay far less in total interest over the life of the
loan.
Consider
Jim Neill, 48, a real estate broker and his wife Merrilyn, 55,
a psychotherapist. Recently, the couple took out a 15-year fixed-rate
loan at 6.75% to replace an 8.13% ARM with a 30-year term. Their
monthly payment jumped by $200, but now they will own their own
home outright by the time they retire. In addition, the total
interest on the 15-year loan will come to $95,447, vs. $222,234
on the remaining life of the ARM -- and that assumes their adjustable
rate would have held steady at its current 8.13%. "This is forced
savings," says Jim. "When we retire, we can scale down and take
equity out of the house."
If
you can't afford the payments on a 15-year mortgage, your next
best means of building equity is to refinance for less than 30
years. To do so, ask your mortgage company to customize your new
loan's term to match the years that are left on your old loan
-- if you are five years into a 30-year mortgage, for example,
ask for a 25-year loan.
