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Before refinancing your mortgage, think about the length of the loan that’s right for you. (iStock)
As the coronavirus pandemic rages on, it continues to have an undeniable impact on U.S. finances. According to data firm Black Knight, more than 2.3 million homeowners are 90 days or more past due on their monthly mortgage payments as of October 2020. However, one positive aspect of this current economic environment is mortgage rates. record.
These lower rates can make you wonder if refinancing your home loan is the right decision. Credible can help you make this decision. Just plug your information into their free tools to get a variety of loan options and see what refinance rates you’re prequalified at.
When browsing through loan options, don’t just watch refinance rates – the term of your loan is just as important. Before changing the terms of your current loan, consider these advantages and disadvantages.
Cons of choosing another 30-year mortgage
Simply put, you might be better off choosing a shorter loan term. To that end, we’ve outlined the advantages of choosing a 15-year loan over a 30-year loan below. With this knowledge, you should be able to determine if choosing a shorter loan term might be right for you.
1. You restart the stopwatch
The first thing to know about refinancing your mortgage and getting another 30-year home loan is that you are effectively restarting the timing of your mortgage payments. After all, when you refinance, you are simply taking out a new loan to pay off the old one, which means it will take you another 30 years from the date of refinancing to pay off your loan in full.
While it’s not that big of a deal if you just took out your home loan a few years ago, if you’ve been paying off your existing loan for a while, you might not want to leave that much time until you’ve paid off your mortgage. mortgage loan. whole house. In this case, it might be better to just put more into your existing loan.
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2. You’ll pay more over time
The other downside to choosing a 30 year home refinance loan is that, even with today’s low rates, you will likely end up paying more money and interest over time. Here, the interest will accrue on the loan for 30 years instead of 15 years, which will increase the total amount of interest you end up paying before the loan is finally paid off.
With Credible, you can be sure to find the rate that’s right for you. Credible can show you the daily mortgage and refinance rates for 30-year fixed-term loans and 15-year fixed-term loans. Click here to view today’s mortgage rates and instantly compare loan options.
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Instead, consider refinancing into a 15-year mortgage
Choosing a 30-year mortgage term is a popular choice among homebuyers, but going for a fixed 15-year term may actually be a better bet (if you can handle the monthly mortgage payments). Here are some advantages of a 15 year mortgage.
1. You will probably get a better interest rate
Along with getting a lower interest rate, there’s another reason you might save more if you go for a 15-year loan when you refi – you’ll often be offered lower rates. To give you a bit of background, the average 30-year loan rate is 2.80%, according to Freddie Mac. Meanwhile, the average rate for a 15-year loan is only 2.33%.
Plug your information directly into Credible’s free online tool now to compare rates and loan options.
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2. You will pay faster
“Refinancing into a 15-year loan gives homeowners the opportunity to see the proverbial light at the end of the tunnel of having a home that gets paid off, which is a huge plus as they head into retirement,” says Jonathan Bednar, CFP and Owner of Paradigm Wealth Partners in Knoxville, TN.
With a 15-year loan, your amortization schedule will be condensed, meaning you have the ability to pay off your home faster. However, keep in mind that this also means that you will have a higher monthly payment. You will need to make sure that you feel comfortable paying more each month before you go this route.
While all homeowners can save money by refinancing, opting for a 15-year mortgage over a 30-year mortgage could save even more money. Take advantage of today’s lower rates with mortgage refinancing. Credible can show you recent trends with 15-year fixed rates and help you get pre-qualified rates in just a few minutes of filling out some simple information.
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3. You will pay less money overall
The final benefit of refinancing into a 15 year loan is that you will pay less money in interest overall.
For example, if you own a $ 300,000 home and refinance into a 30 year loan at 2.8% interest, your monthly payment would be $ 1,269.48 and you would pay 115,012.80 $ in interest over the term of the loan.
In contrast, if you had a 15-year loan on the same house with the same interest rate, your payment would be $ 1,917.74 per month and you would only pay $ 54,193.49 in interest over the term of the loan. ready.
Use an online refinance calculator to see how much you could save on mortgage payments.
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The bottom line
Falling interest rates aside, keep in mind that refinancing into a 15-year loan is not the right solution for everyone. You should also consider closing costs. According to Bednar, it can take 2 to 3 years to pay off your closing costs, so if you don’t plan on staying at home for that long, it will be important to speak with a lender before refinancing.
Visit Credible to compare rates and lenders. You can also use Credible to be prequalified today.
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