The Cost to Refinance to 15-Year Mortgage Terms Does Not Outweigh the Savings
Published March 16, 2022
Refinancing your 30-year mortgage to a 15-year mortgage comes with exceptional benefits. It sets you up to pay off your mortgage quickly, and you can reduce your total interest charges in the process. In addition, some homeowners who refinance to a shorter-term loan can also take cash equity out of their home. These funds can be used to pay down debts, fund a child’s college education, and tackle other major financial goals.
However, a mortgage refinance is not without cost. Are you thinking about the cost to refinance to a 15-year mortgage? More than that, is it financially advantageous to do so? A closer look reveals that the benefits far outweigh the cost to refinance to a 15-year mortgage.
What does it cost to refinance to 15-year mortgage options?
If you’re like many homeowners, you’ve likely paid up to, or even more, than three percent of your home’s original sales price in closing costs at the time of your purchase. When you refinance your mortgage, you are applying for a brand-new loan. This new loan will fully replace your existing loan.
As you might expect, many of the closing costs you paid when you bought your home also apply when you refinance. In fact, the cost to refinance to a 15-year mortgage is estimated to be between 3% and 6% percent of your home’s current value. This might feel like a lot, but the cost to refinance to 15-year mortgage terms is worth paying when all factors are considered. Furthermore, when you put closing costs into perspective, you can see that there are tangible financial benefits associated with refinancing – often in the tens of thousands of dollars.
Associated costs checklist: what to expect
The specific closing costs that an applicant may pay will vary based on the lender, the loan program, and several other important factors. However, you can get a fair idea about possible closing costs that you may be responsible for here. When you work with American Financing, we’ll do what we can to help minimize costs and lock in the best rate for your loan.
Application Fee: Typically ranges between $75 and $300 and covers your credit report and up-front processing of your application
Loan Origination Fee: May be as high as 1.5 percent of the new loan amount and covers the lender’s costs to prepare and underwrite your loan file
Mortgage Points: May be as high as two percent of the new loan amount based on the applicant’s preference and may be used to buy down the interest rate
Appraisal Fee: May be up to or more than $700 depending on the size of the home, its location, and other factors
Inspection Fee: Termite, water well, septic system, and other inspections may be required and usually may cost up to $350 each
Survey Fee: May be up to $400 or more, but it may not be required if the lender accepts your old survey
Closing Fee: May be up to $1,000 and is usually payable to a closing attorney or title company
Title Insurance and Search Fees: May be up to $1,000 and are payable to the title company
Home Insurance: May be up to or more than $1,000 and covers the insurance premium and the establishment of a new escrow account
Loan Program Closing Fees (FHA, VA, and others): May be as high as two percent of the new loan amount
Prepayment Penalty Fee: Cost varies based on the terms of your existing home loan
Putting closing costs in perspective
Before you decide whether the cost to refinance to 15-year mortgage options is worthwhile, we encourage you to put closing costs into perspective. Be aware that you could easily save tens or even hundreds of thousands of dollars in interest charges by refinancing your 30-year mortgage to a 15-year mortgage. While you will need to pay for the refinance loan’s closing costs upfront, you will undoubtedly enjoy a much larger financial return over the years. In addition, keep in mind that you may be able to roll the closing costs into your new loan as well. As a result, this means that you may not have to come to the closing table with a ready-to-cash check to take advantage of the benefits of refinancing to a 15-year mortgage.
Do you plan to pay off high-interest credit card debt with your new mortgage? This equates to additional financial savings. Do you plan to make home improvements with your home equity? These improvements could directly increase your property value. You can see that there are both direct and indirect financial benefits associated with paying for the cost to refinance to a 15-year mortgage.
Refinance to a 15-year mortgage to save thousands in the long run
Still trying to decide if the cost to refinance to a 15-year mortgage is worthwhile? Give us a call or fill out our short contact form. We’ll give you an estimate for what you should expect to pay in closing costs when you refinance. Likewise, consider using our mortgage refinance calculator to compare interest charges you will be responsible for over the life of the new and old loans.
Learn more today
Ready to continue exploring the benefits of refinancing your 30-year mortgage to a 15-year mortgage? Now is the perfect time to get familiar with the specific terms. So prequalify for a refinance and get in touch today.