Is Refinancing to a 15 Year Loan a Good Idea?
Refinancing your home is something that many homeowners contemplate over the years of homeownership and while for some, the refinance may simply be to try and score a lower interest rate, for others, the goal may be to shorten the length of their loan. In most cases, a 15-year mortgage will often provide a lower interest rate than a 30-year loan, which is one of the main reasons that it often looks so appealing to both buyers as well as homeowners.
When it comes to deciding if you should refinance to a 15-year term, you first must decide what your main objective is. Do you want to save on your monthly bills? Secure a lower interest rate? Shorten the term of your loan? While each of these goals can often be achieved by refinancing your loan, you generally can’t accomplish all three within the same refinancing term or loan type. For example, if you want to:
Save on Monthly Bills
If you’re hoping to save on your monthly debts, then choosing a 15-year loan may not be the best option for you, as they are often accompanied by a higher monthly payment than that of longer loans.
Secure a Lower Interest Rate
While we aren’t seeing the historic low interest rates we saw a few years ago, it’s no secret that 15-year loans are generally lower than 30. If you haven’t purchased a home in last 2-4 years, chances are, you can secure a new loan that has a lower interest rate than your current loan provides. Interest rates can not only save on your monthly bills but can decrease the total expenses you’ll spend during the life of your loan drastically.
Shorten the Term of Your Loan
If you’ve had your home for less than 15 years, then refinancing to a 15-year loan will shorten your loan. While in most cases, the 15-year loan will often increase your monthly mortgage payment, by paying off your loan faster, and often securing a lower interest rate, you can expect to pay less during the life of the loan than had you stuck to the original 30-year loan you purchased your home with.
Refinancing your home is a decision that should be thought through thoroughly and discussed in depth prior to making your final decision. It’s also important to remember that just like when purchasing a new home, closing costs are still associated and charged even with refinancing. While you may not have to pay the closing costs out of pocket, your closing cost fees will be rolled into your new loan, so you’ll want to ensure that refinancing your loan makes financial sense.
As experts of the local Southwest Florida market, our team of experts is here to help make all of your real estate dreams a reality. Whether you’re moving to the sunshine state for the first time, looking for a vacation home, or you’re ready to sell, contact us today!