Term
Mortgage Dictionary -> Term
In relation to a mortgage, the term is the length of time used to determine the monthly mortgage payment. Most times, the term usually equals the maturity. However, this is not always the case.
If a borrower wants to refinance, the simplest way to do so without increasing the length of the term is to choose a new mortgage with a shorter term. However, the best way may be to refinance the mortgage for the same term, increasing the payment amount so that you are amortizing the loan over the period of time that you prefer.
In refinancing, the easiest way to shorten the term of the loan is to make the new loan term for a less amount of time than the original loan. For instance, if you've paid on your original loan for 5 years, and it was a 30-year-term, you may want to refinance for a 25-year-term. Your new payment would still be less than your current payment. Contact your lender to see if this is possible because lenders do not customize loans to their borrowers and there is a limited amount of terms that are available.
Better than the example given above is to take the current balance on the mortgage and refinance it for 30 years, increasing the payment by the amount needed to amortize the loan. In order to find out exactly how much this payment must be in order to meet the term, you may contact your lender.
As you can see, the term of a loan is very important, especially in refinancing, but also when originating the loan. While lower payments may seem better initially, a shorter term may help you to save money in interest payments. It's best to talk with your lender, find out what options are available and then make a decision based on your current and projected future financial situation.