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Massachusetts consumers seek shorter loan terms

Homeowners in Massachusetts and in other states are taking advantage of record-low mortgage rates to refinance their loans to shorter terms, reduce debt faster and reduce their interest payments by thousands of dollars.

With the economy doing so poorly and consumer confidence down, homeowners are looking for stability and freedom from debt. While recent changes in interest rates may make refinancing a lucrative option, those Massachusetts residents who are behind in their mortgage payments may not be able to do this for a variety of reasons. For those people, a Chapter 13 bankruptcy may be their best option.

Some experts say homeowners who bought their homes years ago with five or six percent loans can slash years off their mortgage without additional expense. In some cases, homeowners have been known to cut their payment time in half and lower their monthly payments. This can save them tens of thousands of dollars in interest over the life of the loan and build equity more quickly.

In some cases, however, it does not make sense for a homeowner to refinance the loan. For example, if the homeowner is on a tight budget and does not have enough saved up to cover emergencies. (Experts recommend paying off all other debts and saving at least six months living expenses before committing to a shorter loan term.) In these cases, taking the smaller payments and the longer loan term is a better financial decision.

In those cases where homeowners are in financial distress cannot afford their monthly payments, but who would like to stay in their homes, filing for Chapter 13 bankruptcy can keep them in their home while they make smaller, more affordable monthly payments over a set period of time.

Source: boston.com, "Consumers are flocking to shorter loan terms," Jenifer B. McKim, Oct. 13, 2012

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