How a Short-Term Mortgage Could Save You Money
Posted August 29th, 2012 | by The Update
LA Times: Most people refinance to save money. That usually means jumping to a lower rate. But you also can save big bucks by trimming the term of your loan, possibly at the very same low rate.
Most lenders today offer the same 30-year rate on mortgages with terms of 20 to 29 years, said Karen Mayfield of Bank of the West. And most offer the same 15-year rate on loans with durations of eight to 15 years.
You may not save any money immediately, at least not in terms of your monthly payment. But you could save a bundle in interest over the shorter life of your new mortgage. Plus, you’ll build a nest egg that much faster.
The potential drawback to shorter-term mortgages is that your tax deduction for mortgage interest won’t be as large. But that’s a questionable disadvantage.
For one thing, interest is cash out of your pocket. Why spend the money if you don’t need to?
For another, mortgage interest is not a dollar-for-dollar write-off. Rather, the deduction is based on your income-tax bracket. So if you are in the 15% bracket, you’ll get back only 15 cents for every dollar in mortgage interest you spend.