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There are many reasons to opt for a 30-year mortgage when buying a home.
For example, spreading your payments out over 30 years — as opposed to 15 or 20 — lowers your monthly payment. This allows you to buy “more home” and have a manageable payment.
However, as time goes by, you may realize that there are many reasons to refinance your mortgage. And if that happens, you could soon find yourself considering a 15-year mortgage.
Let’s talk about why you would want to consider a refinance from a 30 year to a 15 year mortgage.
The primary reason to refinance to a 15-year mortgage is to lower your interest rate.
Not only does this lower your monthly payment, but it also reduces the amount of money you’ll pay in interest over the remainder of your loan.
Other reasons to refinance from a 30-year to 15-year mortgage include:
No two homeowners are dealing with the exact same situation, but these reasons for refinancing a mortgage pertain to the majority of them.
Anyone who meets the eligibility requirements of their lender can refinance from a 30 year to a 15 year mortgage. But just because you qualify doesn’t mean it’s a good idea to take action.
As a general rule of thumb, the best candidates for this type of refinance are those who meet the following criteria.
Before you make a final decision, you need to know the differences in monthly payments between a 30 and 15 year mortgage.
To better understand the impact of refinancing, let’s take a look at an example.
With a mortgage of $250,000 and an interest rate of four percent, a 30 year mortgage would have a monthly payment of $1,193.54.
If you move to a 15-year mortgage with a three percent interest rate, the monthly payment jumps to $1,726.45.
If you only look at those numbers, you’d assume that a 30-year mortgage is the right choice. But you don’t want to stop there. You need to see how much you’d save in interest.
Here’s the interest over the first five years:
And if that’s not enough, here’s the interest over the life of the loan:
Now, what do you think? Does it still make sense to stick with a 30-year mortgage?
Even though your monthly payment is much higher with a 15 year mortgage, you’ll save tens of thousands of dollars over the long run. That’s something to strongly think about.
By now, you can formulate an opinion on whether refinancing your 30-year mortgage into a 15-year mortgage makes sense. With that, you’re likely to have questions. The following are common questions to answer before refinancing.
If you don’t answer these questions — among others — before refinancing to a 15-year mortgage, you’re taking a big financial risk that could backfire down the road. It’s critical to answer these questions based on your current circumstances and goals. And if you need any help, contact your lender for a more thorough explanation and guidance.
There are many reasons to refinance your 30-year mortgage into a 15-year mortgage, but it’s a big decision that requires your full attention.
When it comes to your finances — especially the home in which you live — you don’t want to make any mistakes.
If you’re ready to take the next step in the process, My Perfect Mortgage is more than happy to show you the way. We can give you the tools and connect you with the right resources to guide you.
Once you get started, you’ll feel confident in your ability to make an informed decision.
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Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.