Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.

Short-Term Refinance Loans

Lenders offer a variety of terms – 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don’t fraction year terms – such as 22 years and 4 months.

However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.

Self Increasing Your Payment On Refinance Loans

Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.

With this approach, you have control over your payments. For some this can be seen as a negative, since there isn’t the required payment. You can also pay off your loan earlier by increasing your principal payment even more.

Pre-pay “Cash Out” Refinance

The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.

This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.

Selecting the Right Refinance Option

Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.

By: Carrie Reeder