When You Should Act on a 15-Year Fixed Interest Rate Refinance
Published March 10, 2022
Opting for a 15-year fixed interest rate refinance presents homeowners with a range of possibilities. Through a refinance loan, you could tap into your home equity, lower your interest rate and enjoy other benefits. Many homeowners are choosing to lock in today’s low-interest rates with a 15-year fixed interest rate refinance. But is this the right move for you to make? Every homeowner has unique circumstances to consider, so it is essential to arm yourself with information before you make a decision.
What is a 15-year fixed interest rate refinance?
When you undergo a mortgage refinance, you use the proceeds from your new loan to pay off your existing mortgage. This means that you have the opportunity to change the interest rate, the payment amount, the loan term, and the payoff date. Depending on your situation, you may be able to choose between a 15-year fixed interest rate refinance loan and a 30-year fixed-rate loan. If you opt for a 15-year fixed interest rate refinance loan, your new loan will be amortized over 180 months. Essentially, this means that your new loan will be repaid in full in 180 months with regular monthly payments. This is compared to 360 months for a 30-year fixed-rate mortgage.
There are many things to consider before you refinance your mortgage. By adjusting the loan term, for example, you will change how quickly equity accumulates, as well as your payoff date. A 15-year fixed interest rate refinance is generally the shortest mortgage loan term available, so it can help you build equity faster and pay off your mortgage sooner. Do you need your home paid off within 15 years to meet your retirement goals? Do you need to build equity faster? Many homeowners consider tapping into their home equity to pay for the kids’ college education, start a business, or act on other goals.
As you determine if you should apply for a 15-year fixed interest rate refinance loan, you should also consider what you could accomplish immediately by doing so. For example, some homeowners may be able to pull equity out of their homes today. This equity could be used to pay for significant expenses, consolidate debt or achieve other goals.
Pros and cons of a 15-year fixed interest rate refinance
Are you trying to decide between a 15-year fixed-rate mortgage and a 30-year fixed-rate mortgage? Both of these financing options have their pros and cons. Understanding the benefits and disadvantages of a 15-year fixed interest rate refinance loan can help you determine if this is the right path. First, by refinancing your mortgage, you are resetting your payoff date. If you are only a few years into a 30-year mortgage, refinancing to a 15-year fixed-rate mortgage will help you pay off your home years sooner. On the other hand, if you only have a few years left on your mortgage, refinancing could push back your loan payoff date.
Equity accumulation also requires your attention before deciding which refinance loan option to take. For example, a 15-year mortgage will be paid off in half the time that a 30-year mortgage will be. This means that more of your monthly payment each month will be applied to the principal with a 15-year fixed interest rate refinance loan. As a result, your debt will be paid down faster, and equity will build more quickly. In addition, you will pay substantially fewer interest charges over the life of a loan with a shorter term length.
A 15-year fixed interest rate refinance loan will establish a new monthly payment amount. This amount will be based on the term length, the new interest rate, and the loan amount. With these factors in mind, your payment may increase or decrease when you refinance. This holds regardless of the term length that you select. However, shorter terms have higher monthly payments. This means that your new mortgage payment will likely be higher with a 15-year fixed-rate mortgage than if you choose a 30-year fixed-rate mortgage.
A closer look at today’s rates
Are you wondering if it is advantageous for you to refinance to a 15-year fixed-rate mortgage today? Current interest rates may factor heavily into your decision. Interest rates fluctuate frequently, but a closer look at rates reveals a general upward trend over the last few years. Mortgage rates have been incredibly low for years, but they cannot stay low forever. There is a general expectation that interest rates will continue their slow rise upward in the years ahead.
Should you refinance your mortgage?
Interest rates are only one of several factors to consider as you weigh the decision to refinance your mortgage. Your mortgage undoubtedly plays a crucial role in your future financial plans. For example, many people plan to have their mortgage paid off by the time they retire. What age would you be when your mortgage is paid off if you refinance today to a 30-year fixed-rate mortgage versus a 15-year mortgage refinance? For many people, refinancing to a 15-year fixed-rate mortgage will help them stay on target with their retirement goals.
There are other factors to consider as well. For example, would you benefit from tapping into your home equity? On the other hand, do you want or need to reduce your monthly mortgage payment? With interest rates expected to rise over the next few years, it may be more affordable to act now rather than hold off. However, because refinancing your mortgage can affect many aspects of your finances, it is essential to weigh all benefits and drawbacks as they relate to you personally. If you’re unsure which option is best for you, get in touch with one of our experienced agents. We can help to steer you in the best direction.
Before you finalize your decision to refinance, explore the loan terms for which you may qualify. Getting prequalified for a 15-year fixed-rate mortgage today will provide the definitive information you need to make a well-informed decision.