Everything You Need to Know About Refinancing from a 30- to 15-Year Mortgage Before Retirement

Published March 20, 2022

Refinancing from a 30- to a 15-year mortgage can be a smart idea to reduce monthly costs post-career. If you’re approaching retirement age, you’re likely reviewing finances and making adjustments. As a result, some late-career homeowners might begin eyeing their newly realized retirement income and looking for ways to eliminate monthly expenses, like a mortgage payment. In refinancing from a 30- to a 15-year mortgage, you can pay off the rest of your home loan quickly, accumulate equity faster, and own your home outright. This, in turn, should reduce your monthly budget burden once you leave the workforce. 

There are some notable advantages and disadvantages to consider before undergoing a mortgage refinance, especially if you’re planning to live on a fixed-income budget. Here’s what you need to know about refinancing into a 15-year mortgage before retirement. 

The advantages of refinancing your mortgage 

Paying less interest over the life of a loan is the primary concern for homeowners considering a home refinance. 15-year mortgage loans offer lower interest rates and shorter loan terms. In making fewer payments, you significantly reduce the amount of interest paid while aggressively paying down the principal loan amount. 

Homeowners also consider refinancing from a 30- to a 15-year mortgage because they want to own their home in a shorter amount of time. This factor is essential for homeowners thinking about retirement. You can eliminate your monthly mortgage payment by paying off a home loan before retiring. Budgeting on a fixed income becomes more manageable when there are fewer recurring costs, and paying off a home is a great way to prepare yourself for life in retirement. That way those extra funds can go towards enjoying the activities you love.  

To that end, refinancing from a 30- to 15-year mortgage allows you to accumulate equity in your real estate property faster. In addition, owning your home with a zero-mortgage balance will provide you with a financial safety net if you ever need to pay for something expensive, like unforeseen medical bills or a nest egg for a child or grandchild. 

Paying off your home loan faster can also allow you to give real estate to a loved one without transferring the financial burden of a mortgage. Your family members may already have financial worries of their own, so eliminating the extra stress can be beneficial. When they inherit your house, they will only need to pay property taxes and homeowner’s insurance.

The disadvantages of refinancing your mortgage

The main disadvantage of refinancing from a 30- to a 15-year mortgage is having a higher monthly mortgage payment. The actual payment amount will depend on how much of your loan you have left to pay and what interest rate you qualify for. However, if you have already reached the halfway point of your current 30-year loan, your new payments should be similar. We recommend using a mortgage refinance calculator to better understand your potential refinance.

Having a higher monthly payment comes with some risks. If you’re already on a strict budget, paying more money each month to cover your mortgage may not be financially feasible. To that end, you’ll have fewer funds to put into a retirement account. Reevaluate your budget and determine if you have enough money to cover the extra expense. 

Who should consider refinancing from a 30- to a 15-year mortgage?

Approaching retirement age often prompts people to consider their financial health and how to continue their lifestyle into the next phase of life. Now is the perfect time to consider your current expenses and assets, as well as how your budget will change going forward. If you have prepared well for retirement and plan on having extra disposable income, refinancing from a 30- to 15-year mortgage may be a feasible option for you. This will allow you to pay off the loan sooner, freeing up more funds later for the daily activities you love.

There are many reasons people reaching retirement age choose to refinance, including:

• They want their families to inherit a house without worrying about a mortgage loan.

• They want to go on more trips sooner and make memories with their family.

• They want to use the equity in their house for financial emergencies.

• They want one less financial obligation to worry about.

• They can afford a higher monthly payment and want to own their house completely.

The process of refinancing

To refinance your mortgage, you must apply for a home loan – just as you did when you first purchased the home. However, your new loan will have updated terms, including a different interest rate and new monthly payment amount. Once you receive approval for the loan, you will pay off your old loan with your new mortgage. 

Note that mortgage interest rates fluctuate daily. Don’t wait for rates to dip before you start your refinance. If you’re ready to begin refinancing from a 30- to a 15-year mortgage, acting now is your best option. If interest dips, you can always refinance again into that lower rate.

Planning for retirement is a stressful time. Take the time to thoroughly evaluate the changes to your budget as you consider retirement. If you have the funds to pay a higher mortgage payment and want to have extra funds sooner to enjoy retirement, refinancing from a 30- to 15-year mortgage may be the best option for you. If you’re considering a mortgage refinance, give us a call or fill out a pre-approval form.