June 14, 2020

Consider refinancing into a 15-year mortgage

With the pandemic still prevalent and interest rates near all-time lows, now is a great time to think about a refinance. But it may also be an opportune time to consider shortening your mortgage’s term in the process.

Many homeowners choose to refinance from a 30-year fixed-rate mortgage to a fresh 30-year equivalent. But while this can lower your monthly payment, it can add extra years to the total amount of time you’ll be financing your home. That means you’ll pay more in total interest over the combined terms of your original loan and your refinanced loan than you might expect. Instead, it can be smart to pursue a refi with a shorter term. Refinancing from a 30-year, fixed-rate mortgage into a 15-year fixed loan can result in paying down your loan more quickly and saving lots of dollars otherwise spent on interest. You’ll own your home outright and be free of mortgage debt much sooner than normal. Plus, mortgages with shorter terms often charge lower interest rates. Consequently, more of your monthly payments will be applied to the loan’s principal balance.

Learn more about the pros and cons of shifting to a 15-year mortgage via refi by reading my newest article for Bankrate, available here.