Refinance: Reduce Total Interest Cost

Reduce total interest costs

ou may be able to reduce the cost of your mortgage by refinancing with a lower interest rate loan. There are three scenarios where this can make sense.

Take advantage of lower rates
If interest rates have dropped since you got your mortgage, you may be able to get a new loan with a lower interest rate. Refinancing would then reduce your interest costs and possibly your monthly payment costs.

Get a shorter term loan

You can sometimes reduce interest costs (even if interest rates haven't declined) by refinancing to a loan with a shorter time horizon.

For example, if you now have a 30 year fixed interest mortgage, you can often reduce your interest costs over several years by switching to a balloon loan, or a 15 year mortgage. These types of mortgages generally have lower interest rates.

Get a new ARM
If you have an adjustable rate mortgage (also known as an "ARM"), and it has adjusted up, you may be able to save money by refinancing with another ARM.

Since ARMs usually have a low interest rate for the first year or so, you can reduce your interest rate for that introductory period.