As you are trying to repay your mortgage loan asap, you may be wondering if you have to make higher payments every month to get the job done. But can you pay a 30 year mortgage in 15 years? It is possible, but in many cases it may be easier or cheaper to refinance a 15 year mortgage instead.
Homeowners often refinance to get a better interest rate on their mortgage payments, but that’s not the only reason to refinance. You can also refinance to change your mortgage term – while taking advantage of the lower interest rates.
When does refinancing make sense?
There are many times when it makes sense to consider refinancing your mortgage loan.
One of the main reasons for refinancing is to save money by lowering your interest rate. If you are having trouble paying your mortgage certificate and need to find a way to lower your mortgage-related costs, you may be able to refinance at a lower interest rate. In most cases, this will help you save money on your monthly payments and the total amount of interest you will pay over the life of your loan.
If you want to repay your loan faster, you can opt for a shorter term. Refinancing from a 30 year loan to a 15 year loan can help you pay off your home much faster and save money in the meantime.
In many cases, 15-year mortgages have lower interest rates than 30-year mortgages, and you also pay interest for a shorter period. Both will help you save money on the total amount of interest you have paid. However, you need to be sure that you can afford the higher monthly payments before you take the plunge.
Another reason to refinance is to change your loan from one type to another. For example, let’s say you bought your home on a variable rate mortgage. As you near the end of your ARM’s fixed income period, you may want to refinance a fixed income loan instead to avoid fluctuations in interest rates.
And sometimes it’s a good idea to refinance so that you can use your home equity to get access to large sums of money. You may need to do this when paying off a debt, dealing with an emergency, or taking advantage of an unexpected opportunity.
There are many drivers behind refinancing. Ultimately, the reason for refinancing is personal, and each person has their own goals and reasons for refinancing.
Read: When To Refinance Your Mortgage
Is Refinancing a Good Idea when it comes to 15 Year Mortgages?
Is It Worth Refinancing a 15 Year Mortgage? It may be. There are many reasons to refinance for a 15 year mortgage, and most of them are about time and money.
Refinancing a 15-year mortgage offers the following advantages:
- Lower rates: In many cases, 15-year fixed-rate mortgages have lower interest rates than 30-year mortgages, although this depends on a number of different factors.
- Save money: You can save a lot of money over the life of the loan by refinancing from a 30 year loan to a 15 year loan because the interest rate is lower and you have less time to pay interest.
- Equity: Making larger 15 year mortgage payments can help you pay back your interest quickly. In turn, you can reduce the loan capital much faster than would be the case with a longer term of the mortgage.
- Faster out of debt: You pay off your mortgage loan in half the time when you switch from a 30-year to a 15-year mortgage loan. That means you’ll be out of debt much faster – at least for your mortgage.
Disadvantages of Refinancing on a 15 Year Mortgage
There are some drawbacks to refinancing your mortgage on a 15 year loan. Do the advantages outweigh the disadvantages? You have to decide the answer to this question, but some of the downsides are:
- Higher monthly payment: Refinancing a 15 year loan will cost you more each month for your loan payments. You might end up digging a hole that is difficult to get out of or with less money to spend on emergencies or repairs.
- At least about to repay your loan: If you are about to repay your mortgage loan, the short-term refinancing can cost more than it’s worth it. You may be better off paying back your loan faster each month than spending the money on the refi.
- Less money for savings or investments: Refinancing can leave you so short of cash that you cannot invest or save as much as you want. You may be able to earn more earned interest than you save with a refinance. So do the math before you decide.
- Other debts are more urgent: If you have a lot of other high-interest debts, it may be worth paying off your other debts first before refinancing because the other debts will cost you interest.
- The cost of refinancing: When you refinance, you pay closing costs similar to what you paid on your first mortgage. Closing costs are generally between 2% and 5% of the loan amount, which can make refinancing too expensive when compared to what you are saving.
How To Refinance Your Mortgage
If you’re looking to refinance, you can probably complete most of the application and approval process from your home computer.
To refinance your mortgage, you should:
- Research lenders, their interest rates and any fees they may charge. You need to narrow it down to the lenders that are right for your needs before blindly submitting applications for your loan to be refinanced.
- Submit all of the lender’s mortgage applications within the same general time frame. In general, you have 45 days to group all other mortgage-related inquiries together as a single unit. This will minimize the damage to your creditworthiness from harsh pulls.
- Once all of the offers are in, you need to choose a lender and set an interest rate. That way, you will get the interest rate you want. If you wait, prices can fluctuate and cost you more.
- Submit all required documentation and financial information to get final approval of your loan. This process can take a while. So make sure you have the documents you need to speed up the process.
- Close your loan. Closing a Refi is similar to closing your house for the first time. You will need to pay the closing costs and sign the documents to complete the loan.
Read: How To Set Off The New Mortgage Refinancing Fees
Is it worth refinancing?
Whether refinancing on a 15-year fixed-rate mortgage is worthwhile depends on your refinancing goals. This type of refi will likely lower your interest rate and shorten the life of your loan
You will build equity much faster than a 30 year loan, but you will pay more every month because you will pay back your loan in half the time. This can be difficult when you are on a budget or when your income fluctuates from month to month in a sales or contract position.
It is worth checking that your goals are in line with the outcome of the refinancing. At the very least, you should speak to a lender to see what your options are.
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