Reduce the Amortization Period.

Would you say no to a pile of money if it were offered to you? Probably not! Well that’s exactly what refinancing the amortization period of your mortgage can be – a pile of money waiting for you to pick it up.

Although many people concentrate exclusively on interest rates and monthly payments when they refinance, the amortization period is as important, if not more. Reduce your amortization period by even a few years and you could save tens or hundreds of thousands of dollars and be mortgage free years before you planned.

Consider this example. You have a $150,000 mortgage and are refinancing. If you chose a 30-year loan at 5.8% you will pay $880.13 in principal and interest each month. If you chose a 15-year loan at 4.8% you will pay slightly more – $1,170.62 – but pay off your mortgage 10 years sooner. What’s more, you’ll save yourself more than $106,000 in mortgage payments by paying just $290.49 more each month. Obviously this is only an option if you have the disposable monthly income. There is no sense sacrificing to pay off you mortgage early if it means 15 years of misery.

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If you are hesitating about refinancing because you don’t want to go back to a 30-year amortization, fear not. Refinancing into another 30-year mortgage doesn’t necessarily mean you will be making payments for another 30 years. If you have a specific date you would like to be mortgage free – retirement for instance – you can use a mortgage calculator, or ask your lender, to determine how many extra payments you must make to reach your goal. If you pay an extra half mortgage payment every two weeks you can shave a full 7 years from the 30-year term.

Let's say you want to refinance your 5-year-old mortgage to take advantage of lower interest rates but you don’t want to return to a 30-year amortization and be stuck paying for your mortgage 5 years longer than you had planned. No problem. You simply refinance the $125,000 you owe over a 25-year term and make monthly payments of $805.38 (plus taxes and insurance), rather than the $749.44 you would pay if you amortized the loan over 30 years. That works out to just $55.94 extra per month or $671.28 per year – not bad considering you will be mortgage free that much sooner.

So, as you can see, there are many ways to shorten your amortization period and get mortgage free sooner.