When you accelerate the payoff of your home mortgage by refinancing into a shorter term loan, this is considered a term reduction. Some of the most popular reasons for term reduction are purely financial — saving money on interest by making fewer payments at better rates. Many of our clients are also looking for the peace of mind of paying off their home in time to send their children to college or to retire without a mortgage payment.

Typically, lower interest rates are available on shorter term loans with the most competitive rates being for fixed rate loans of 15 years or fewer. 

While refinancing your current balance over fewer years may increase your monthly payments, the interest savings over the life of the loan can be substantial. 

Let our mortgage experts do the math and show you how you can achieve your goal of paying off your home sooner and with less of your money going toward interest.

Conventional Loans

The qualifying criteria for conventional loans are the same, regardless of the loan term, when it comes to your income, assets, and credit. Ideally, your debt-to-income ratio will be less than 43% (or up to 50% with strong compensating factors). If you have less than 20% equity and are required to pay Private Mortgage Insurance (PMI), it is significantly less expensive on a 15 year loan than a 30 year loan and you’ll be building up your equity more quickly with each payment.

FHA Loans

While the Up-Front Mortgage Insurance Premium (UFMIP) remains the same, the annual Mortgage Insurance Premium (MIP) is less expensive on loan terms ≤15 years.

VA Loans

All of the features of a VA loan are the same, regardless of the loan term, including the funding fee.