But, Orman generally recommends refinancing to a new loan with a shorter term. A move that is supported by many financial advisors.
“My rule of refinancing is that you are to never extend your total payback period past 30 years,”
Let’s say you are indeed still holding onto a 30-year loan you took 14 years ago during the fall of 2006.
At that time, rates were averaging a high 6.4%. Say your mortgage was originally in the amount of $250,000; you’d now have a balance left of about $188,000.
Why refinance to a shorter-term loan?
Today, rates on 30-year fixed home loans are averaging just 2.87%, according to mortgage company Freddie Mac.
If you were to refinance that $188,000 balance to a new 30-year mortgage at 2.87% and stay with the loan for the entire term, the lifetime interest would total close to $93,000.
You could choose to do a 15-year refinance instead. Fifteen-year mortgages have lower interest rates than 30-year loans: The average for a 15-year is currently 2.37%. A half percent lower which may not seem like a lot been when you’re talking about hundreds of thousands of dollars, this half a percent adds up.
