In today's interest rate environment, short term mortgages have never looked better. Some lenders have seen rates drop below 3% on 15 yr terms while 30 year mortgages remain above 3% (as seen on www.mortgagenewsdaily.com). For consumers that have not refinanced in the last 4 years, there is great opportunity to cut their term 5+ years and keep their monthly mortgage payment around the same.

Just today I was locking a loan for a client in the North Seattle area whom faced the following predicament. Should she save $300 each month or cut her term by 6.75 years and keep her payment the same. I reminded her that regardless of the option that is a much better situation to be in than her current loan.

The important things to remember when making a term reduction decision are the following.

1) how long will you stay in the home

2) Is your employment stable

3) does your current income level allow you to do the following.

a) Pay your mortgage

b) Pay all of your credit cards off

c) Save at least a 3 month cushion in your checking and savings

d) live a comfortable live style

If you have debt that is non mortgage, and are constantly strapped for cash, a term reduction is not right for you.

I constantly hear borrowers in the position described above tell me that even though they have a bunch of credit cards. They do not want to restart their 30 year mortgage. What they are failing to see is the overall benefit associated with a refinance in general. Just because a term reduction is not going to work out for you does not mean you should avoid refinancing. In fact the client I mentioned earlier chose the 30 year mortgage over the 20 year mortgage.

They did this because honestly things were a little tight and they had allowed their credit card debt to rack up around 25,000.00 and found themselves making the minimum payment. This perpetual debt cycle traps many homeowners, holding them back from financial freedom.

In the case of my client they will be able to utilize the $300 extra per month to pay down their credit cards one by one. This is a strategy referred to as the Debt Snowball by Dave Ramsey a well known advocate against debt. What happens for my client is they will start by applying the $300 toward their smallest credit card, then from there pay down each card in order from smallest to largest. Each time they pay off a credit card, they will then apply the additional monthly savings to the next liability (debt).

Eventually my client will be rid of all her credit card debt increasing her total monthly savings to over 650 per month. Once she has paid off all of her credit cards, she will then be able to apply those funds toward the mortgage, which will in turn reduce her loan term.

The nice aspect of the 30 year over a shorter term is the fact that the 30 year allows you to budget for extra payments, instead of locking you into a payment that might still leave you strapped. So remember even if you were initially looking for a term reduction, remember a 30 year might just be the best route for your specific situation, and may still result in you reducing your term.