Posted by Apex Home Loans ● November 11, 2020

The Benefits of a 15-Year Refinance

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The COVID-19 pandemic persists, and interest rates remain near all-time lows. Considering these conditions, homeowners nationwide are connecting with their local mortgage lenders to weigh a refinance. An important piece of that decision is selecting a term for their new loan. While some homeowners choose to refinance from their 30-year fixed-rate mortgage to a 30-year equivalent, others are hesitant to add extra years to the total time they’ll be in their loan, and by extension, increase the combined amount of interest they’ll pay. Instead, homeowners are considering 15-year fixed-rate mortgages to save on interest and accelerate their timeline to owning their home outright. Here’s why.

Benefit 1: Pay Less Interest
Refinancing from a 30-year mortgage into a shorter loan term, i.e. a 15-year mortgage, could save you thousands in interest costs. You’ll also pay your loan off sooner, leading you to be debt free earlier than normal. Since the term is shorter, lenders will also likely charge lower interest rates than 30-year loans.

Benefit 2: Build Equity More Quickly
A more aggressive payment schedule will allow you to build equity more quickly. You can then tap that equity using a home equity line of credit or home equity loan if you need extra money in the future.

Benefit 3: Leverage Your Mortgage Position
Depending on the size of your current mortgage and how much lower your new interest rate is compared to your old one, it’s possible that your monthly payment may not change meaningfully. For example, let’s say you are 12 years into your 30-year mortgage that had a beginning balance of $360,000 with an interest rate of 4.5%. Your principal and interest payment is $1824.07. If you were to refinance that loan into a 15-year mortgage at 2.875% interest rate with no points (2.95% APR based on amortized balance of $269,703) your new payment would be $1846.35 So, after closing costs, paying $267.36 more per year in this example would allow you to be debt-free three years more quickly.

A 15-year mortgage isn’t the right fit for everyone. In most instances, if you’re shortening your loan term, your monthly payment will rise. This means that your monthly budget will have less wiggle room, which could be problematic if you have a fixed income. The additional funds that you are contributing to your mortgage payment may also yield a greater rate of return if invested elsewhere.

If you can comfortably afford higher monthly payments on your mortgage, a 15-year refinance loan could be a good fit for you. Looking for more refinance terms to consider? Learn all about the benefits of 10 and 20-year refinance loans our Refinancing Recommendations series.

Please be aware: by refinancing your existing mortgage, your total finance charges may be higher over the life of the loan


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Topics: 15 Year Mortgage, Refinancing Simplified, home loan refinance