The terms of mortgage loans have to be decided carefully. Sometime people do not realize that by saving a couple of dollars a day and destining them to mortgage repayment they can save thousands of dollars over the whole life of the loan. With slightly higher monthly payments you can pay off your mortgage sooner and save thousands on interests. Shorter Repayment Programs By requesting a shorter repayment program, you will definitely get a slightly higher monthly payment, but that increment can be as little as $30 to $60 which implies $1 or $2 a day. It is not such a big sacrifice and you will be paying off your debt sooner. Besides, a year less of mortgage payment is a year less of interests because interest rate is calculated annually. Moreover, a shorter repayment program has an additional implication: Since the money owed will be repaid sooner, the lender is taking a lower risk by lending the money and thus, the interest rate charged will also be lower. So, you will not only be saving money due to shortening the repayment program and thus the interests, but the interest rate will also be lower making you save thousands of dollars with each quarter of a point of interest. Lower Interest Rates Depending on the loan length, the loan will carry a higher rate or not (The longer the repayment program, the higher the risk and thus the higher the interest). However, the rate will also depend on whether you choose a fixed or variable rate and whether you have a good credit score or not. Nevertheless, you should always know that you can save money by shortening the repayment program or by prepaying the mortgage loan provided there are not penalty clauses in the loan contract that increase the cost of the loan if you decide to prepay. If so, you should check to see if you are really saving money by prepaying. Refinancing Your Home Loan All the above is important if you are planning to take a home loan. If that’s the case, you need to make sure that you are not overpaying a huge amount just to get a lower monthly payment that will save you only $30 or $60 a month. A little sacrifice every month can save you a lot of money on the long run (money you can invest to generate additional income). However, if you already have a mortgage loan and you are ruing because you closed on a deal that is definitely not to your advantage, you do not need to worry as you can always refinance your home loan so as to get better loan conditions and seize the benefits that are explained above. Refinancing is a simple process: you take a loan that is secured on the same property as your previous mortgage on condition to repay the previous loan so the new one remains the only loan for which the property acts as collateral. You just need to make sure that by doing so, you are actually saving money because the costs of refinancing may be higher than what you save by getting better terms.
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