A reduction in term refinance is a mortgage refinancing strategy where you replace your current loan with a new mortgage that has a shorter repayment period, such as moving from a 30-year to a 15-year loan. This approach helps homeowners pay off their mortgage faster and reduce the total interest paid over the life of the loan, although it usually increases monthly payments.

When you refinance to a shorter term, lenders often offer lower interest rates because the loan duration is shorter and less risky. For example, refinancing a $278,000 balance from a 30-year loan at 5% to a 15-year loan at 4% could raise your monthly payment from approximately $1,610 to $2,057 but save tens of thousands in interest and shorten your payoff time by a decade.

To begin, you apply for a new loan with the desired shorter term. The lender will assess your credit, income, and home value, including ordering an appraisal (see our article on Refinance Appraisal). Once approved and closed, your new loan replaces your existing mortgage, and you make higher monthly payments that clear your debt sooner.

This strategy is ideal if your income has increased, you plan to remain in your home long-term, or want to be mortgage-free before retirement. However, it’s important to budget carefully to avoid financial strain and consider closing costs, which typically range between 2% to 5% of the loan amount (learn more about Refinance Closing Costs).

Alternatively, if higher payments are a concern, making extra principal payments on your current mortgage can also reduce your term, but this approach lacks the lower interest rate benefits of refinancing.

For a detailed checklist on preparing for refinancing, visit our Mortgage Refinance Checklist.

Important to keep in mind:

  • Refinancing results in a hard credit inquiry, temporarily affecting your credit score.
  • Not everyone qualifies; lenders typically require at least 20% home equity.

By refinancing to a shorter-term mortgage, you accelerate home ownership and significantly cut interest costs, making it a powerful tool for homeowners ready to commit to higher monthly payments for long-term savings.

For additional guidance on mortgage refinancing, consult the Consumer Financial Protection Bureau’s resources on Mortgage Refinance.