Should You Refinance to a 15 Year Loan?

If you are exploring your home loan refinance options, one thing to consider is a shorter loan term. For some borrowers, this makes sense depending on the financial needs and goals of the borrower.

Some wish to be debt-free by a certain age, or out from under a mortgage loan payment by the time retirement age hits. In cases like these, a 15-year loan may make sense.

A CNN article titled “Mortgage rates fall to record lows again” has intriguing advice for those looking to refinance a home loan. CNN Money writer Les Christie says, “...current conditions mean it may make sense for current mortgage borrowers and new homebuyers to look at shorter-term loans.”

If you’re in the market for a refinance loan, what are the advantages of a 15-year note over a 30-year refinance loan? According to the CNN article, higher mortgage payments on the 15-year loan make sense for anyone who wants to pay off that loan sooner instead of later.

“Homeowners current paying off 30-year loans with rates of 4% spend about $1,098 a month in mortgage payments on a $200,000 balance, paying a total interest cost of $143,739. Refinancing at 2.63% for 15 years would cost them about $250 a month more, but they would wind up paying just $42,250 in total interest and their payments would end years earlier.”

Is now the time to make the jump for a higher-interest 30-year fixed rate mortgage to a 15-year fixed refinancing loan? For some, lower monthly payments associated with a 30-year mortgage is more of a priority than paying off the loan quickly.

Those worried about retirement savings, liquid capital, and the ability to be debt free should consider the sacrifices short-term with a 15-year loan in favor of more long-term needs. If you are on the hunt for a new home or a refinancing loan, think about the implications of a shorter loan term and do the math. If you can afford the 15 year loan, the benefits could outweigh the short-term disadvantages.

Speak to a loan officer about the 15-year loan option to learn more.

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