thursdayLet’s face it many Americans are seeking some financial relief right now and refinancing your mortgage seems like an easy way to reduce some monthly debt.  This is definitely true but don’t jump the gun if your considering refinancing back into a 15 or 20 year mortgage.  Let me explain why.

In a normal market the lesser the term the better the interest rate.  We’re not in a normal market.  During the last few months most lenders are not offering a much lower interest rate on the 15 and 20 year loans so ask yourself this.  Why would I want to obligate myself to pay back a loan earlier if there is nothing in it for me?  If the interest rates are the same or close to the same, take the longer term.  Let’s say you’re perfectly fine making the more expensive payment and you just want to pay off your mortgage sooner than later to save on interest.  I understand, but just because you take a 30 year loan doesn’t mean you can’t pay it off in 15 or 20 years.  Just make the payment each month as if you had the lesser term mortgage and you’ll pay it off early and avoid the extra interest.

Let’s say something happens to you a few years from now.  You lose your job, you get sick and can’t work or maybe you take on a bunch of additional debt due to medical bills.  Now you can start making the 30 year payment instead of the much higher 15 or 20 year payment.  Remember, you might not qualify to refinance your mortgage at a later date  in the event something happens.  Once your situation returns to normal you can ramp up your mortgage payments again but at least you’ll have options if times get tough.

Times are getting tough for a lot of people.  People that not too long ago would have never seen it coming.  Don’t rush into a short term mortgage unless the interest rate you can get your hands on is much lower than the longer term options.