Interest rates are at record lows – and homeowners aren’t shy about taking advantage of that fact. More and more, Marketwatch reports, they’re refinancing their mortgages to lock at rates below 4 percent in exchange for a shorter payment term.
Over a quarter of homeowners who refinanced in the first six months of 2010 chose a 15-year fixed-rate mortgage; that’s up from 18.5 percent who did so in 2009, and 9.4 percent in 2007, according to CoreLogic, a firm which provides data on financial, property and consumer trends.
The downside, of course, is that you’ll be paying a lot more every month for that mortgage. The reduction of interest rates will eat up part of that increase, so a shift from a 15-year to a 30-year mortgage won’t double your payments immediately.
It would be imprudent, however, to jump into a much larger payment without making sure you can support it. A solid job is key – if you might be out of work next year, it makes little sense to add a large bill that can’t be put off from month to month.
One way to get around refinancing is to just save extra money and then apply that in bulk to the principal of the loan. That way, you can receive the benefits of early payment while not committing yourself to an expensive monthly plan.