Should I Refinance to a 15-Year Mortgage?

February 15th, 2010

A greater percentage of borrowers seeking mortgage refinancing are considering 15-year loans. Use mortgage calculators to weigh the pros and cons of a 15-year mortgage refinance.

Fifteen-year, fixed-rate mortgages are appealing to a growing portion of borrowers who want to refinance their mortgages, accounting for one in five refinance applications in October 2009, up from 9% of refinance applications one year earlier, the Wall Street Journal reports.

Here are some key factors to consider if you’re thinking about refinancing to a 15-year mortgage:

• Lower Refinance Rate for Shorter Term

You’ll get a lower interest rate on a 15-year mortgage than on a longer-term mortgage, and you’ll save even more on interest because you’ll pay off the loan sooner.

• Monthly Payment: Use Mortgage Payment Calculator

Despite the lower interest rate, you’ll still pay more per month on a 15-year than a 30-year mortgage because the loan amount is spread over a shorter period of time. To figure out the difference use a mortgage payment calculator to determine the monthly payment on a 15-year versus a 30-year home loan.

• Should I Refinance? Examine the Costs

Refinancing to a lower interest rate is worth it only if you stay in the home long enough to recoup the costs of refinancing. Use the free refinancing calculator to see whether you’ll save money and how much your monthly payments will be. First get up to four free quotes from lenders, and plug that information into the calculator and compare to your current mortgage.

• Other Options to 15-Year Home Refinance

If you like the idea of paying your mortgage down sooner, but you decide refinancing to a 15-year loan isn’t worth the cost, then consider paying extra on your mortgage each month to repay the principal faster. Use the early payoff calculator to determine how much extra to pay each month to retire your loan early.

Of if you still want to refinance, but don’t want to lock yourself into the higher payments, consider refinancing to a 30-year loan and make extra principal reduction payments to repay the loan in 15 years. That gives you financial breathing room just in case money gets tight and you can’t make a higher payment.

With mortgage rates at near historical lows, don’t drag your feet if you’re thinking about refinancing. Rates are starting to creep up, and no one knows what will happen in coming months.

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