Buying a home is a dream for many people but it comes with commitment and proper financial planning. It may not be a surprise that 2013 could have been a strong year in as far as refinancing mortgage loan originations is concerned, considering that the rates are still at near record lows. This is something, which has seen more homeowners now opting for the short-term home loans or mortgages rather than clinging on the traditional 30-year term mortgages.
In a report presented by Freddie Mac, which focused on the fourth quarter refinancing of 2013, it showed that borrowers who had refinanced in the year 2013 managed to save about $21 billion on interest over a period of 12 months in repaying their newly refinanced loans. Besides, the report also showed that about 39% of the home mortgage borrowers who modified or refinanced their loans during the fourth quarter decided to go for short-term mortgage loans.
Prior to rates going down, it would be difficult for homeowners to refinance their mortgage loans from their long term or 30-year arrangement to the short-term loans without incurring a dire increase in the monthly payments. With the current rates, homeowners can have a choice to make since they are able to refinance their mortgage into a short-term loan while maintaining the same or similar monthly repayments and at the same time having the opportunity to increase their home equity within a short time.
With the short-term mortgages, it means that homeowners are able to clear their loans in half the time it would take the long-term loans. Besides, since they do not have to pay more or higher on interest rates, it means that they do not harm their loan repayment. Other benefits that are witnessed are such as homeowners having their homes paid for in retirement as well as spending less time to worry about any over stretching on critical savings accounts or social security checks on home loan payments.
However, not all consumers may be good candidates for these short-term loans. For example, if you a first time homebuyer, then you might have to consider the 30 year loan because of the lower monthly payments, which allows you to have time and establish financial discipline, which is essential in repayment of mortgages.
The short-term mortgage loans can offer an ideal option to borrowers who want to have a mortgage without strict savings plans. When it comes to building of home equity, it seems to be a sort of forced savings plans for the borrowers, which allows them to pay themselves first.
If you are modifying or refinancing an existing mortgage, the benefits, which arise from the short-term loans, are a great incentive. Nonetheless, if you have already made more than half of the loan or you have already covered 16 or 17 years, you need to consider the closing costs that are required in refinancing. They may not make the short-term loan very attractive in such a case.