Savings Strategy: Switching to a Shorter-Term Loan

Name: Chris Reining
Location: Madison, Wis.

How would you like to pay refinancing costs and increase your monthly mortgage payment to save money? Sounds crazy, right?

The truth is that doing just that may actually help cut your mortgage costs in the long run. That is exactly what Chris, the thirty-something Madison, Wis. founder of the personal finance blog, MrEverydayDollar.com, discovered when he refinanced his own mortgage.

The original amount that Chris took out for his mortgage was $180,000, with a 30-year term and an interest rate of 5.63 percent. When he went to refinance, he took out the new loan for $160,000, and switched to a 15-year loan with an interest rate of 3.25 percent.

Though his refinancing costs were approximately $1,000, when he calculated how much he'd save by going to a lower rate, Chris found it was worth it. In fact, within seven months, he was able to recoup the costs of refinancing.

And even though his monthly payment increased, the significantly lower interest rate on the 15-year loan didn't cause his monthly payment didn't change by much.

"While I pay a little more per month now, about $100, the benefit is that my mortgage will be paid off in close to half the time," Chris explains.

But the savings didn't stop there. "Over the next five years, refinancing will both save me $13,429 and reduce my loan balance by $46,000," Chris says.

"I'd recommend - with mortgage rates at historic lows, to take the time and effort to talk to a loan officer about refinancing your mortgage," Chris says. "We might never see rates this low again in our lifetime."