Many homeowners could benefit from refinancing their mortgage to a lower interest rate, but they don’t want to deal with the hassle of starting over with a new 30 year loan. They’ve already made so many monthly payments at their current rate and they don’t see the advantage of lowering it.

However, you can save money by refinancing from a 30 year mortgage to a 20 year mortgage. First of all, it’s important to remember that shorter terms generally have a lower rate. So a 20 year mortgage will typically have a rate that’s lower than a 30 year. Because the term is shorter than a 30 year, the borrower pays less interest over the life of the loan. This translates into long-term savings.

On the other hand, the monthly payment will be higher for a 20 year mortgage as opposed to a 30 year mortgage. So you need to decide if  you are more concerned with short-term savings or long-term savings.

Let’s take a look at the difference between some of the fixed rate loan options MiLEND offers. We will exclude ARMs and Interest Only Loans from this comparison.

Term Loan Amount Rate APR Payment Total amount paid over the life of the loan
30 yr fixed $300,000 3.500% 3.820% $1,347 $484,968
20 yr fixed $300,000 3.375% 3.820% $1,739 $417,360
15 yr fixed $300,000 3.000% 3.570% $2,144 $386,036

This example is to illustrate the importance of the term in determining the right loan for you and your family. As you can see, the 30 year loan is the cheapest per month, but will cost you the most over the life of the loan.

  • Monthly Payment
  • Total Payment