When Should You Refinance (Refinansiere) Into a 15-Year Mortgage?


Since the pandemic is still affecting our daily lives, the economy faces severe issues. Still, the interest rates have reached all-time lows, meaning you can refinance your current mortgage to save money and repay it faster than before. 

Numerous household owners want to refinance an old 30-year fixed-rate mortgage with another 30-year loan. Although this will help you reduce the monthly installments, you will add more years to the overall amount of time. Therefore, you will end up paying higher interest compared with the original mortgage you had. 

As soon as you check here, you will learn everything about refinancing. 

Instead, you can choose the refinancing option for a shorter term. Remember that changing thirty-year into a fifteen-year loan may help you repay everything sooner and save plenty of money you would spend on interest. 

It means you will become an owner of the home you live in and be free of mortgage and other debts. Besides, short-term options come with lower interest rates than others. As a result, you will apply more of your monthly installments into a principal. 

However, it is not a choice for everyone, which you should remember. The main reason for that is that you will end up with higher monthly installments since you will compress the overall payment quickly. 

It means you will increase the spending on a monthly budget, especially if you earn a fixed income. Of course, you can invest additional money you would spend on a mortgage, and you will get fewer chances to deduce the interest on taxes. 

However, if you have earned a promotion that increased the overall income significantly, this strategy can benefit your situation even if you spare the higher amount for monthly installments. 

The best candidates are people who have lived in their homes for a few years and have a steady income and monthly budget to handle higher installments. Of course, you must consider other daily and monthly expenses, including emergencies, maintenance, and repairs. It is vital to have savings aside for unexpected things, especially in economic turmoil. 

We recommend comparing different mortgage rates from various lenders before refinancing into a 15-year option.

Benefits of Refinancing into a 15-Year Mortgage

Similarly, as mentioned above, you should know that lending institutions will charge lower interest rates for short-term loans than extended options. At the same time, you will create a more significant paying schedule, saving you thousands of dollars in interest in the long run.

Another important consideration is that you will build higher equity as time goes by, meaning you can tap into it by taking a loan or cash-out refinance in situations when you need additional cash. 

Besides, monthly expenses may not increase significantly after lowering your terms. You may get a lower monthly payment depending on the size of the current mortgage and how the new rate is compared with an old one.

Disadvantages of Refinancing into a 15-Year Mortgage

Tying your money for your household is a risky endeavor. According to financial experts, you need between three- and six-months emergency savings aside if you cannot work for extended periods or lose a job. 

You should avoid refinancing if it affects your regular cash flow. This is especially important in the uncertain financial climate we currently live in. It is vital to make sure you can continue repaying the debt on time to prevent the chances of losing your household and reducing your overall credit score. 

At the same time, you can increase your mortgage into an IRA account or 401k plan that will provide you with emergency savings. The approach will help you avoid potential issues of maxing your credit cards and entering higher debt than you wanted in the first place.

If you do not have enough money to max out available retirement plans, you should avoid refinancing (spare med refinansiering) to accelerate your mortgage. The main reason for that is because you will give a hundred percent return on investment in something that will provide you three to four percent return. 

It is way better to put aside additional money towards paying high-interest debts, especially if you have it. At the same time, you should make sure to maximize your tax-advantaged retirement options before increasing monthly expenses. 

Remember that paying a low rate is a tax-deductible debt with low priority compared with higher options. 

Differences Between 15-Year and 30-Year Mortgage

It is vital to understand that the minimum monthly payment on a mortgage is the amount you must pay each month to handle the expenses. The minimum cost for a 30-year mortgage is lower than a 15-year counterpart, and you will also get higher budget flexibility than other options.

If your income changes, you enter a financial emergency, or you lose a job, it is a handy solution. Therefore, before converting into a 15-year mortgage, you should consider how the higher payments will affect your overall finances.

We are evaluating your chances to pay monthly expenses and how the higher amount will affect the capacity to invest and pay down other debts. Compare the new option with the current one to determine the best course of action.

Suppose you want to pay everything off faster. You can handle it by making additional payments to your existing loan. That way, if you pay more than the regular amount, you will reduce the time of your loan, especially if you do it aggressively.

The main problem with this strategy is that you will pay a higher interest rate on the current loan, especially with a new one with lower terms. You must also specify, manage, and send additional payments, which will help you handle the entire process.

When you decide to make extra payments, you will get flexibility. It means if you lose a job or must cover an emergency expense, you can skip an additional charge for a few months until you recover.

On the other hand, a 15-year mortgage comes with a more significant minimum payment, meaning you cannot make them lower than they already are. The best way to calculate the effects of making additional payments is by finding a mortgage amortization calculator online that will help you with the process. 

Best Candidates for 15-Year Mortgage Refinancing

The best person who should refinance into a shorter-term mortgage can comfortably afford higher monthly payments. According to an expert, it is crucial to do it only if you can reduce the interest rate by one percent. 

Suppose you have less than eighteen years remaining of the thirty-year mortgage. Then, you should avoid refinancing and start making additional payments towards the principal, which will help you pay off faster than expected. 

However, if your loan comes with twenty or more years of payments and features a four percent or higher interest rate, it makes sense to shorten your terms. 

You should ask yourself a few questions, including whether you can afford the higher payment and if the money you will save is worth a more elevated amount each month, especially if you have other ways to invest and use the extra money you have. 

You can always choose accelerated payments, meaning you can double the minimal amount for a few months, then pay the installment as before. That way, you can prevent potential risks from affecting your finances.