Quick answer: Refinancing a $250,000 balance from 27 years remaining at 7% to a 20-year loan at 6% raises the monthly payment from about $1,720 to about $1,791, but cuts total interest from about $307,000 to about $180,000. That is roughly $127,000 in interest savings and a payoff 7 years sooner, before closing costs.
Many homeowners refinance to lower their payment. But refinancing to a shorter term can save far more over the life of the loan if you can afford a slightly higher payment.
Why Shorten Your Mortgage Term?
Shortening your term can help you:
- Save interest over the life of the loan.
- Pay off your home sooner.
- Build equity faster.
- Improve your financial position heading into retirement.
Example: Refinancing From 27 Years at 7% to 20 Years at 6%
Assume a $250,000 balance with 27 years remaining at 7%. The principal and interest payment is about $1,720. Refinancing to a 20-year loan at 6% raises the payment to about $1,791.
| Current loan | New loan | |
| Balance | $250,000 | $250,000 |
| Rate and term | 7%, 27 years | 6%, 20 years |
| Monthly principal and interest | about $1,720 | about $1,791 |
| Total interest over the term | about $307,000 | about $180,000 |
The payment rises by about $71 a month, but total interest falls by about $127,000, and you are mortgage-free 7 years sooner. This example does not include closing costs, which reduce the savings.
Next step: Tell us your balance and rate and a loan officer will show how a shorter term changes your payment and total interest.
No obligation. Rates, terms and availability depend on your credit and property. It only takes a few minutes.
Additional Benefits of a Shorter Mortgage Term
- Faster equity buildup: More of each payment goes to principal.
- Earlier financial freedom: Paying off your home sooner can help your retirement planning.
- Lower total cost: A slightly higher payment can significantly reduce the total cost of the mortgage.
What Are the Drawbacks of a Shorter Term?
A higher required payment reduces your monthly flexibility, and your cash is tied up in home equity. Make sure you keep an emergency fund and that the payment fits comfortably in your budget.
Is a Shorter Mortgage Term Right for You?
If you can comfortably afford the higher payment, refinancing to a shorter term can save a significant amount of interest. A loan officer can run your actual numbers, including closing costs and your break-even point.
Frequently Asked Questions
Is it worth refinancing to a shorter mortgage term?
It can be if you can afford the higher payment and plan to stay in the home. A shorter term usually carries a lower rate and far less total interest, but you should weigh closing costs and your budget.
How much does a 15-year mortgage save compared to a 30-year?
It depends on the rates and your balance. A 15-year loan typically has a lower rate and much lower total interest, but a noticeably higher monthly payment. A loan officer can run both for you.
Next step: We will run your actual balance, rate and closing costs and show you the payment and interest savings of a shorter term side by side.
No obligation. You will answer a few quick questions about your refinance so we can offer you the best options. It only takes a few minutes.
Method: Payments and interest figures are calculated with the standard fixed-rate amortization formula. They exclude taxes, insurance, mortgage insurance and closing costs, and are examples, not offers.
Tithe Lending LLC | NMLS #2439006 | Equal Housing Lender. General information only; not a loan offer or financial, tax or legal advice.