Homeowner FAQ: Should I Refinance To A 15-Year Mortgage?
For those who have weathered the economic turmoil of the last five years, now might be a good time to ask: Should I refinance to a 15-year mortgage?
Refinancing your mortgage can open opportunities to:
- Save you significant amounts of money
- Pay off your home sooner
- Achieve greater financial stability
The bottom line: A 15-year mortgage offers the potential for significant interest savings while helping you own your home faster.
At MIDFLORIDA Credit Union, we’re here to guide you through decision-making and help you take advantage of refinancing opportunities that align with your goals.
In this article, we’ll explore the benefits, considerations, and scenarios where this kind of refinancing makes sense. These are the key factors in determining if you should refinance to a 15-year mortgage for your best financial future.
Refinance your mortgage with MIDFLORIDA today.
How does a 15-year mortgage work?
A “15-year mortgage” is exactly as it sounds—a home loan designed to be paid off in 15 years instead of the more common 30-year term.
This shorter repayment period typically comes with higher monthly payments but lower overall interest costs.
Refinancing to a 15-year mortgage allows you to replace your current loan with one paid off more quickly, saving you thousands of dollars in interest.
Benefits of refinancing to a 15-year mortgage
Refinancing to a 15-year mortgage is popular for many homeowners, particularly when interest rates are favorable.
Save money on interest
Not surprisingly, one of the most compelling reasons to refinance to a 15-year mortgage is the potential for significant interest savings.
These loans are repaid in half the time of a 30-year mortgage, so lenders often offer lower interest rates for shorter-term loans like these.
This combination of lower rates and a shorter term can drastically reduce the total interest paid over the loan's life.
Check out this example:
- A $250,000 loan at 6% for 30 years will cost approximately $289,595 in interest.
- A $250,000 loan at 5% for 15 years will cost approximately $106,021 in interest.
The shorter-term loan saves nearly $183,000 in interest, even with higher monthly payments!
You build equity faster
With a 15-year mortgage, a bigger chunk of that monthly payment goes toward the loan's principal balance, especially in the early years.
This means you build equity in your home more quickly, which could be a big advantage if you plan to sell or borrow against it in the future.
Own your home sooner
Refinancing to a 15-year mortgage allows you to achieve full homeownership in half the time of a traditional 30-year loan.
Once mortgage payments have been wiped out, you'll have the financial freedom to focus on other goals:
- Saving for retirement
- Funding your children’s education
- Traveling
Predictable payments
Like other fixed-rate mortgages, 15-year loans offer consistent monthly payments, which are much more conducive to stability and predictability for your budget.
This predictability can be especially appealing if you want to simplify your finances and lock in a low rate.
Considerations before refinancing to a 15-year mortgage
While the benefits of a 15-year mortgage are compelling, it’s important to weigh them against your current financial situation and goals.
Here are some key factors to consider.
Higher monthly payments
The primary trade-off for refinancing to a shorter term is the higher monthly payment.
- For example, if your payment on a 30-year mortgage is $1,200, refinancing to a 15-year mortgage could increase it to $1,800 or more, depending on the loan amount and interest rate.
Before refinancing, evaluate your budget to ensure you can comfortably afford the increased payment without straining your finances. You can also connect with a MIDFLORIDA loan officer, who can advise you on your options.
Refinancing costs
Refinancing typically involves upfront costs, including:
- Closing fees
- Appraisal fees
- Loan origination fees
These costs range from 2% to 5% of the loan amount.
While the long-term savings of a 15-year mortgage often outweigh these costs, it’s important to calculate your break-even point, the time it takes for your savings to offset the refinancing expenses.
Opportunity cost
Redirecting more of your monthly budget toward mortgage payments may leave less money available for other financial priorities, such as:
- Investing
- Saving for emergencies
- Funding other goals
Consider whether the benefits of a 15-year mortgage outweigh the opportunity cost of allocating funds elsewhere.
Your current interest rate
If you already have a low interest rate on your 30-year mortgage, the difference in rates for a 15-year term might need to be more substantial to justify refinancing.
Compare your current rate with the new rate to determine if refinancing makes financial sense.
Scenarios where refinancing to a 15-year mortgage makes sense
Refinancing to a 15-year mortgage isn’t for everyone, but it can be a smart choice in specific situations. Here are a few scenarios where it may be especially beneficial.
You want to maximize savings on interest
If your primary goal is to minimize the total cost of borrowing, a 15-year mortgage is an excellent option.
Combining a shorter term with a lower interest rate? That winning teamwork can save you a substantial amount of money compared to a longer-term loan.
Retirement is looming
Homeowners approaching retirement often prioritize paying off their mortgage to reduce expenses during their non-working years.
Refinancing to a 15-year mortgage can bring you closer to this goal while taking advantage of today’s low interest rates.
Your income has increased
If your financial situation has improved, such as a salary increase or reduced expenses, you may find that you can comfortably handle the higher monthly payments associated with a 15-year mortgage.
Refinancing allows you to use your increased cash flow to pay off your home sooner.
You’re looking for stability
If you’re currently on an adjustable-rate mortgage (ARM) or a longer-term loan, refinancing to a 15-year fixed-rate mortgage provides the stability of consistent payments and protection from future interest rate fluctuations.
Apply to refinance with MIDFLORIDA today
Refinancing to a 15-year mortgage might be one of the smartest ways to save on interest, build equity faster, and fully own your home sooner.
However, it's always a good idea to evaluate your financial situation to determine if it’s the right choice for you.
At MIDFLORIDA, we’re here to help you explore your options and find a refinancing solution tailored to your needs.
Ready to take the next step? Apply to refinance with MIDFLORIDA today and begin your journey toward greater financial freedom.
The following web blog is intended for educational purposes only, is not an offer of credit or advertisement of currently available loan terms or products, and is not legal advice. Please consult our loan web pages or your professional advisors for more specific information.
