If you are refinancing a mortgage in Indianapolis, you may have an opportunity to adjust the term of your loan.
If money is tight right now, you might be contemplating extending your mortgage term.
For example, if you have a 15-year mortgage rate now, you might be thinking about turning it into a 30-year mortgage.
Doing so may be tempting, because you know that it will result in significantly smaller monthly payments due on your mortgage.
But extending your mortgage can have a cost both financially and psychologically, and that is something you need to evaluate carefully before moving forward.
Let's discuss when it may be a good idea to extend your mortgage term as well as situations where you may want to avoid doing so.
When Not to Extend Your Mortgage Term
If you are doing relatively well making ends meet right now and do not expect a change in the future, you probably should not consider extending your mortgage term.
The reason is that when you lengthen the term of your mortgage, you accumulate interest over a longer span of time.
You could end up paying thousands of dollars more over the long term as a result.
All other things being equal, that is money you would prefer to keep in your pocket later down the road.
When to Consider Extending Your Mortgage Term
Although extending your mortgage term can lead to paying more in interest over the long run, that does not mean that it is never a suitable move.
Following are some scenarios where lengthening the term of your home loan could be the logical decision.
- When you have other high-interest debts to deal with (maybe). One situation where you might want to consider extending your mortgage term is when your home loan is not the only debt you are juggling. For example, you may have one or more high-interest loans which you are also paying on. Since those loans are accumulating more interest than your mortgage, giving yourself more time to pay it off so that you can put more money toward those high-interest debts each month might be helpful. On the other hand, that might be unnecessary if you can consolidate your mortgage in Indianapolis in such a way as to incorporate those high-interest debts at a lower interest rate.
- When you need the money to invest in something. Another situation where it might make sense to extend the term of your mortgage is when you have an opportunity in the present worth taking advantage of. For example, you might decide to invest your money in the present because doing so may more than compensate for the increased interest of your mortgage over the longer loan term. Yet another scenario might be when you need more financial liquidity each month to invest into a business. Without extending your loan term and freeing up finances in the present, it might be impossible for you to pursue such a goal or reap the potential financial rewards.
- When you cannot keep up with your current bills. Finally, there are plenty of situations where you might need more time to pay off your mortgage because you cannot keep up with your present obligations. Particularly in the time of COVID-19, many people are having a difficult time making ends meet. You might have lost your job, or you could have reduced hours, or you might be trying to recover from a furlough. Some things have become more expensive as well. A lot of people's grocery expenses are climbing through the roof. On top of all that, there's the possibility of finding oneself with massive medical bills to deal with. Whether coronavirus has anything to do with your current financial predicament or not, you can only take care of your future by taking care of your present. For that reason, extending your loan term could be essential, even though it may mean paying more in the long run. At least for now, it will help you to stay afloat and not default on your mortgage. Then when you have the extra money you can start paying down the mortgage quicker as it was a shorter term. This gives you the flexibility to have the most affordable payment, but with the option to pay it quicker on any given month.
Grandview Lending Can Help You Adjust Your Loan Term
Not sure if extending your loan term is the right financial decision? We can advise you during your consultation.
If lengthening the term of your mortgage does seem like it could help you financially, we can walk you through the process.
We can also answer other questions about refinancing. To get started today, please give us a call at (317) 255-0062.