Refinancing from 15 to 30-Year Loans Can Help Relieve a Tight Budget

Published March 21, 2022

You refinanced to a 15-year mortgage, and it was a good idea at the time. Now, you might be reconsidering that move. Refinancing into a shorter loan, like a 15-year refinance, usually increases your monthly mortgage payments. But, if you’ve experienced recent changes in income or financial standing, you might be looking to reduce your monthly expenditures. Consider refinancing from 15- to 30-year loans. This can take the pressure off your monthly budget, allowing you to breathe easily once again. 

What does it mean to refinance into a 30-year loan?

Refinancing from a 15- to 30-year loan means that you replace your current mortgage with a 30-year mortgage loan. When most people do this, they are refinancing so that they can have a lower interest rate. The monthly payments decrease when you lower the interest rate. When you refinance into a 30-year loan, you break the principal into more payments. In doing this, you reduce the loan amount paid per month, further shrinking the monthly expense. 

How would a 30-year refinance impact your budget?

Refinancing from a 15- to a 30-year loan can go a long way in allowing you to apply more of your monthly income to your other bills. Reducing the amount of principal paid each month will lower your payment. Depending on when you began your 15-year loan, you may also be able to lower your interest rate by 0.5 or 0.75 of a percentage point. These look like small numbers, but they mean that your monthly payment can be significantly lower. 

Before you consider refinancing from a 15- to a 30-year loan, you must first ensure that you have all the materials necessary to qualify. Refinancing will only work to lower your mortgage payment if you can qualify for a loan with the lowest interest rate. Let us know if you’re not sure which mortgage refinance is best for your current financial outlook. We’re happy to steer you toward the loan that best suits your needs. 

What are the long-term costs associated with a 30-year refinance?

Along with the savings, there are also costs associated with refinancing from a 15- to a 30-year loan. For example, you will have to pay closing costs when applying for this new loan. Closing costs are the processing fees that you must pay a lender for loaning you the money. Many of the fees will be the same fees you paid when you applied for your first mortgage. 

The amount you will pay in closing costs depends on where you live and the size of your mortgage. Typically, the closing costs you will pay may be between 2% and 6% of your loan amount. The national average closing cost for refinancing was equal to $5,749, but your number will be higher or lower depending on where you live and the size of your loan.

When you are refinancing from a 15- to a 30-year loan, the closing costs will be the following:

• Loan application fee

• Loan origination/underwriting fee

• Home appraisal

• Credit report fee

• Title search/insurance fee

• Mortgage points

• Settlement fee

Refinancing into a 30-year loan will also increase the amount of interest paid over the length of the loan. This will significantly increase the amount paid over those 30 years, but homeowners will see an immediate short-term gain in the form of budget relief.

What refinancing costs will you have to pay?

The following costs are the typical closing costs for refinancing from 15- to 30-year loan:

The loan origination/underwriting fee

Lenders charge this fee because the loan process requires them to spend money. This fee lets them know that you will complete the process after it begins. The origination fee pays the lender for originating the loan and completing the process from the first step of taking your application until you receive your money. 

The home appraisal

Most refinances require a home appraisal. This is because lenders cannot decide how much they can allow you to borrow until they know the actual market value of your house. Even so, this isn’t always required to refinance a loan. 

Title search/insurance fee

Most refinances require homeowners to invest in title insurance. Title insurance will address any issues that come up over your property’s title during the loan’s term. When you qualified for your original loan, you purchased a lender’s policy for title insurance. After you refinance your original loan, the title insurance policy will be invalid, and you will need a new one. However, if you also purchased an owner’s policy, it should still be in effect. 

Mortgage points

Mortgage points are called “discount points” because they reduce your interest rate. A point is equal to 1% of the loan amount and may lower the rate by 0.25%. For example, if you purchase one point on a mortgage loan of $100,000, you will pay $1,000 to lower your rate. Suppose that you got a loan with a 3.75% interest rate, and then you decided to purchase one point to lower it by 0.25%. Your new interest rate would be 3.50%, which would lower the interest that you will pay over the life of the loan by $5,000.

The settlement fee

Your state may require that you hire a real estate attorney to supervise the loan process and ensure that all the paperwork is signed correctly. If not, a title agent can perform these duties. Either way, these professionals will charge you a fee for their closing services. 

Refinancing from 15- to 30-year loans makes budget relief possible

If you’re in the process of reworking your monthly budget, refinancing from a 15- to a 30-year loan can offer the relief you might need. While you’ll pay more interest over the life of the loan, you’ll immediately lower your monthly payments. See your options for refinancing from 15- to 30-year loans and give us a call today.