Let’s say you originally bought your home when the best interest rate you could get was 7.5%. Can you get a lower interest rate?Īs a rule, refinancing a mortgage makes sense when you can get a loan with a lower interest rate. Before you refinance, ask yourself these questions. While refinancing may make sense if you can afford a higher monthly payment, it might not make sense, depending on your financial situation and goals. Should You Refinance Into a 15-Year Mortgage? ![]() In this situation, you’d need to pay an additional $598 a month toward your principal and interest, but you’ll have repaid your loan 10 years sooner and paid $269,785 less in interest over the life of the loan. Keep in mind, if you refinance after 5 years with a 30-year mortgage, you will have only paid $16,148 toward the principal so your balance won’t have changed that much if you refinance to a 15-year mortgage. To help you visualize what switching to a 15-year mortgage looks like, check out the difference between a 30-year mortgage compared to a 15-year term. While a lower interest rate is a good incentive to refinance, the shorter repayment period for a 15-year mortgage can also increase your monthly payments. Historically, the average interest rates for 15-year fixed-rate mortgages are roughly 0.5% lower than interest rates on 30-year fixed-rate mortgages. How Does Refinancing to a 15-Year Mortgage Work? ![]() Let’s discuss the benefits and drawbacks of refinancing to a 15-year mortgage, and whether you should swap your current mortgage for a new 15-year loan. If you’re considering refinancing to a shorter loan term, there are plenty of reasons to do so, but cutting your loan down to a shorter term isn’t a decision you should take lightly. Refinancing to a 15-year mortgage can help you build home equity faster, pay off your loan sooner and potentially save you thousands of dollars on interest payments. But after a few years, your situation may have changed and you may have new financial goals – like paying off your mortgage sooner or saving on interest charges. If you own your home, there’s a good chance you bought it using a 30-year fixed-rate loan.
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