Participants in the HARP 2.0 program—a program that is designed to assist homeowners in refinancing their mortgages, even if the mortgage is more than the home’s current value—are being encouraged to shorten the terms of their refinanced mortgages. According to the Federal Housing Finance Agency’s (FHFA) website, “borrowers who owe more on their mortgages than their homes are worth may be locked into their homes for years and have fewer financial options until they pay down the loan balance.”
The website continues to explain that “a shorter term mortgage enables such borrowers to pay down the amount they owe much faster than a traditional 30-year mortgage.” And since interest rates on these shorter term mortgages are usually lower than those offered for 30-year mortgages, taking this step to shorten the terms of their mortgage might actually be possible for homeowners without creating too much change in their current monthly payments. For many, this could actually result in a reduction in their monthly payment in addition to shorter loan terms—what homeowner wouldn’t want that?
An added benefit for shortening the terms of a mortgage is that the overall financial situation of the borrower is made stronger. With lower terms and a lower interest payment, your credit report will be in better standing—so will your checkbook! Beyond this, you will own your home sooner and have more money to put toward retirement, or wherever else your 20-year financial planning outlook takes you.