With interest rates so low I am often asked if you should refinance into another 30-year mortgage loan or go with a shorter-term loan. Depending on your financial situation, I encourage you to talk with a financial planner and/or your accountant since they may have other suggestions based on your entire financial picture.

If you have already paid on your existing mortgage loan for 5 or more years you might want to consider a 25-year mortgage or a shorter-term mortgage if your goal is to stay on track with paying off your mortgage in 25 years or less. If your goal is to maximize the amount you will save each month with the lower interest rates than it may make sense to refinance into another 30-year loan.

There is an easier way to pay down your loan faster if you decide on a 30-year mortgage by making one extra mortgage payment every year. The outcome of doing this can be similar to using a bi-weekly program. You can take advantage of making the extra payment when you receive your tax refund or a bonus, etc. While it isn’t common, you should confirm with your current lender there are no prepayment penalties and that your extra payment will go to principal only vs. principal and interest.

If you want to make extra payments or calculate your payment to a 25, 20 or 15-year term, I have a simple solution for you. I have a mortgage calculator on my webpage at You can enter the loan amount, your new interest rate and the term of your loan and it will calculate a new principal and interest payment for you. For example, if your new loan amount is $250,000 and your new interest rate is 3.50%, your principal and interest payment would be $1,122.61 on a 30-year loan. By changing the term of the loan from 30 years to 25 years you can see that the principal and interest payment would be $1,251.56. In this example, if you wanted to pay off your loan in 25 years, just make an extra $128.95 towards your principal every month. You can also adjust the term to reflect a payment you can afford. An added advantage of this report is that it also provides total payments and total interest over whatever term you select.

I encourage you to contact a local lender or feel free to reach out to me, so you can have enough information to make a good decision both long and short term. There are costs involved with refinancing your mortgage including a new appraisal, title insurance, processing fees, etc. Closing costs tend to average between $3,000 - $4,000, including prepaids, so it may take a few years to recoup these costs.

Most homeowners today have a 30-year mortgage. Refinancing from a 30-year to a shorter-term loan will save a lot in interest payments, but the monthly payments may be higher. Usually the interest rate on a shorter-term mortgage will be lower and in some cases, you can shrink the term on your mortgage and have the same monthly payment. I encourage borrowers to consider a 30-year mortgage with the option to make larger payments to allow you to pay it off sooner. This will give you the option to make the lower payment if your financial situation changes.

If you enroll in a bi-weekly payment program you are paying half your monthly mortgage payment once every two weeks which equates to 26 payments or 13 monthly payments for the year. The benefit to doing this is you will lower your principal balance faster and pay less in total interest. You can usually pay off your mortgage 5-6 years sooner with a 30-year mortgage using a bi-weekly payment plan. Most important, you will save thousands of dollars on interest charges and pay down your principal balance sooner. If you decide to do this, I recommend you have the option to change back to the monthly payment program if your financial situation changes.

A simple rule to follow - You can always make a larger payment on a 30-year loan, but you cannot make a smaller payment on a 15-year loan.

Jim Kaiser

Branch Manager, NMLS #1721861

Cherry Creek Mortgage, LLC, NMLS 3001