Refinancing to a 15-year fixed-rate mortgage can save you money over the long term in two ways. Lenders charge lower interest rates on shorter-term mortgages, reflecting their lower level of risk in extending the loan compared with a typical 30-year loan. Also, since you’re borrowing the money for half as long, you’ll often save tens of thousands of dollars in interest over the life of the mortgage.
However, with a 15-year loan, you’ll have a higher monthly payment. If you can afford the larger payments, refinancing to a 15-year loan can help you reach homeownership sooner while saving a bundle on interest.
Refinancing rates continually fluctuate, but for now they are still within a historically low range. Since mortgage experts don’t expect interest rates to drop significantly from current levels, it could be a good time for homeowners to refinance.
If you currently have a 30-year mortgage and have room in your budget for a higher mortgage payment, refinancing to a 15-year fixed-rate loan can make good financial sense. You’ll have the stability of knowing that the monthly payment won’t change, while getting the benefit of a lower interest rate. Plus, you’ll pay off your home faster, freeing up money for other financial goals like retirement savings. Keep in mind that you need to show the lender that you have enough income to cover a higher payment in order to qualify for the new loan.
On the other hand, if your main goal is to achieve the lowest possible payment, you could refinance to a 20- or 30-year mortgage. While starting fresh with a new long-term mortgage isn’t always the best move, it is an option if you need to trim monthly expenses — for example, if you are worried you could lose your job or need to boost cash flow.
Advantages of a 15-year mortgage refinance:
Disadvantages of a 15-year mortgage refinance:
Not sure whether to commit to the higher monthly payments? You can mimic the effect of refinancing to a 15-year loan by simply making extra payments on your existing 30-year loan. You’ll pay less interest and shorten the time to pay off while still keeping some wiggle room: should a financial emergency arise, you can revert to your original, lower payment amount for that month, or as long as you need to, without incurring any penalties.
Deciding between a 15-year refi and increasing payments on your existing loan? You can use Bankrate’s additional mortgage payment calculator to see exactly how extra payments shorten your time to pay off and how much you shave off interest costs.
A variety of factors could motivate your decision to refinance to a 15-year fixed-rate mortgage. If your income has increased since you got your 30-year mortgage, you might want to speed the timeline to owning your home in full. Or, if interest rates have dropped since you bought your home, you might want to refinance to reduce the total amount of interest that you’ll pay over the life of the loan.
If you’ve set your sights on home renovations or repairs are in your plans, a cash-out refinancing to a 15-year loan can provide a way to tap the home equity you’ve built up. While you certainly shouldn’t treat your home equity like an ATM, cash-out refis are a lower-cost form of debt compared with higher-rate credit cards or unsecured loans, particularly when you choose a 15-year repayment term. It’s prudent to keep the amount of the new mortgage low enough that you can comfortably afford a 15-year term rather than starting over with another 30-year mortgage.
Say you chose an ARM when you purchased your home, perhaps because you didn’t plan to stay in the home for long or you needed a low monthly payment. Priorities can change over time, though. Refinancing to a 15-year fixed-rate loan from your current adjustable-rate mortgage could provide you with stability, predictability and significant savings.
For example, with a 5/1 ARM, the interest rate would reset after five years. That means if the market rate rises, your interest rate and monthly payment would also rise. Since most experts don’t expect mortgage rates to drop significantly from current levels, it could be a good time to refinance to a fixed-rate loan, eliminating the uncertainty and the risk of a rate increase. Choosing a 15-year repayment period would also lower your interest costs and shorten the time to full homeownership.
Refinancing comes with closing costs, just like original mortgages. Closing costs vary, but they can be 2 to 5 percent of the loan amount. On a $100,000 refi, closing costs of 3 percent would be $3,000, a significant chunk of change.
You should try to negotiate with the lender to see if the fees can be lowered. The lender may offer to let you fold the closing costs into the loan, so you don’t have to come up with the cash upfront. But that means you’ll also be paying interest on the extra amount. Instead, ask whether the lender would be willing to waive part of the closing costs, such as the application fee or credit check fee. Particularly if you are a repeat customer, you might be able to work out a better deal.
Since the goal of refinancing is saving money, you’ll want to calculate how long it will take you to break even on the closing costs and start realizing actual savings. Bankrate’s refinance calculator helps you quickly figure how long it will take to recoup closing costs so you can decide if the refinancing is worthwhile.
As with any financial product, you don’t want to take the first refinancing deal you’re offered. Each lender sets its own interest rates and fees, so you’ll want to shop around to find the best deal before refinancing. You can quickly compare rates from many lenders with Bankrate’s refinancing interest rate table. The table is updated frequently, so you can easily search for the best 15-year fixed rate loan available for your situation when refinancing your mortgage.
|Loan Type||Purchase Rates||Refinance Rates|
|The table above links out to loan-specific content to help you learn more about rates by loan type.|
|30-Year Loan||30-Year Mortgage Rates||30-Year Refinance Rates|
|20-Year Loan||20-Year Mortgage Rates||20-Year Refinance Rates|
|15-Year Loan||15-Year Mortgage Rates||15-Year Refinance Rates|
|10-Year Loan||10-Year Mortgage Rates||10-Year Refinance Rates|
|FHA Loan||FHA Mortgage Rates||FHA Refinance Rates|
|VA Loan||VA Mortgage Rates||VA Refinance Rates|
|ARM Loan||ARM Mortgage Rates||ARM Refinance Rates|
|Jumbo Loan||Jumbo Mortgage Rates||Jumbo Refinance Rates|