Refinance to a 15-Year Mortgage: Pros and Cons
Properly planning for retirement starts with wise decisions about home ownership. Get an in-depth look at the pros and cons of refinancing your 30-year mortgage to a 15-year mortgage.
Pros and Cons of Refinancing to a 15-Year Mortgage
Considering refinancing your mortgage? Refinancing to a 15-year mortgage can be an attractive option for many homeowners, but it's not for everyone. With the pros and cons of a 15-year mortgage in mind, you'll be better equipped to make the right decision for your needs.
The Pros of Refinancing to a 15-Year Mortgage
First, let's take a look at some of the advantages of refinancing to a 15-year mortgage. The most significant benefit is that you'll be able to pay off your loan more quickly. By doubling both your loan payment and the term of the loan, you can significantly reduce the total amount of interest you'll pay over the life of the loan. With a 15-year mortgage, you can pay off your loan almost six years earlier, saving you a considerable amount of money.
Another major plus to a 15-year mortgage is that your interest rate will usually be lower than that of a 30-year mortgage. Since the loan is being paid off more quickly, loan providers view this as less risky and therefore offer a lower interest rate. This, in turn, saves you more money, making it a favorable option for some homeowners. Finally, a 15-year mortgage offers the security of long-term stability since you are more likely to stay in your home if you know you won't have to be paying off the loan forever.
The Cons of Refinancing to a 15-Year Mortgage
Of course, there are also some downsides to consider before refinancing to a 15-year mortgage. The most significant disadvantage is that your monthly payments will be higher. Since you're paying off the loan more quickly, the amount of each payment will naturally increase. This can be a burden for those on a tight budget, since their monthly expenses will increase significantly.
Another downside is that refinancing can be costly. Though the process is simpler if you already have a mortgage in place, there are still closing costs associated with the transaction. This can be an issue if the cost of closing outweighs the potential savings you'd get from a shorter loan term.
Should You Refinance to a 15-Year Mortgage?
The decision to refinance to a 15-year mortgage is a personal one that should depend on your individual circumstances. If you're able to handle the increased monthly payments and the costs associated with refinancing, it can be a great way to save money and reduce your loan term. However, if the payments are too burdensome or refinancing is too costly, a 15-year mortgage may not be the right choice for you.