When Should You Refinance from 30- to 15-Year Mortgages?

Published March 4, 2022

Many homeowners are considering a refinance from 30- to 15-year mortgage options, but few know the most opportune time to make the switch. With ever-changing interest rates and unpredictable housing markets, it can be challenging to know when – and if – you should make the financial move. 

In general, homeowners should consider refinancing for a shorter loan term in the following situations:

• When interest rates dip

• If the person wants to focus on paying off their home rather than making other financial investments

• If the homeowner recently added another income to the house (marriage or cohabitation)

• If the homeowner recently came into a large sum of money (insurance payments or inheritance)

• If the homeowner’s cash flow is expected to remain consistent for the duration of the loan

The optimal time to refinance from 30- to 15-year mortgage options is different for each person, but the current market landscape is excellent for those who are ready to make the decision. The past few years have seen a lot of turbulence in real estate financing, and 2022 is shaping up to be similarly exciting. If you’re considering refinancing to a shorter loan term, here’s what you should know. 

What to expect when refinancing for a shorter loan term

Refinancing to a 15-year mortgage is an excellent option for some homeowners – but not all. Making this financial move is likely to have the following effects on your experience of the mortgage:

• Reduce mortgage interest rate: While your monthly payments will rise with a shorter loan term, a greater percentage of that payment will go toward the principal balance of your home loan – not toward accumulated interest. This means you’re saving tens of thousands long term.

• Own your home faster: Refinancing to a shorter loan term will allow you to own your home outright in less time.

• Build equity efficiently: Lower interest and a shorter loan term allow homeowners to build equity more efficiently. More of each payment will go toward the home itself. 

• Prepare for closing costs: As with the initial 30-year loan, refinancing to a 15-year mortgage will likely require closing costs – usually between 2 and 5% of the total loan amount.

• Less financial flexibility: Putting more money into a home means fewer funds on hand for other expenditures. So, you may miss out on other investments, like retirement savings and emergency funds.

• Higher monthly payments: A shorter loan term means higher payments. The loan sum is spread out across fewer months, which means those payments will be higher than with a 30-year mortgage.

If you’re in a good place financially and motivated to pay off the loan, choosing to refinance from 30- to 15-year mortgage options can be a good decision. Refinancing can help you save thousands of dollars over time, but you aren’t likely to feel those savings until the end of the loan term. 

A refinance can support financial goals

People who want to refinance from 30- to 15-year mortgage options are likely in good financial standing. They want to make strategic moves with their money. Experienced homeowners who want to shave a few years off their current mortgage can benefit significantly from refinancing to a shorter loan term in the current market.

In early 2022, mortgage refinance rates remain historically low. So, if you’re worried you missed out on the window of low interest rates that came in 2020, know that you still have time. The currently available mortgage rates are still considered favorable compared to pre-pandemic ranges. 

Even if 15-year rates are 4%+ by the time you refinance, choosing to refinance from 30- to 15-year mortgage options can still generate savings. Monthly payments will be higher than your current expenditures, but you’ll save money on interest while shortening the length of your loan. You’ll own your home faster and get out of debt quicker. 

If you’re able to prioritize debt-free homeownership over other investments, and you plan to live in the home long enough to break even on the purchase, this financial move is one to prioritize. Homeownership remains one of the best ways to grow wealth in America, regardless of income. Refinancing can expand those financial gains. 

Mortgage refinance calculator

Your personal savings should drive the choice to refinance from 30- to 15-year mortgage options. This calculator will help you better grasp what you stand to gain. 

How to refinance from a 30- to 15-year mortgage

If you’re not sure if a 15-year refinance suits your financial goals, we’re happy to steer you in the right direction. At American Financing, we provide a consultative approach with no upfront costs. Here’s what to expect when you work with us on a mortgage refinance. 

1. Determine your eligibility - This includes checking your credit score and history, understanding your home equity, and getting your paperwork in order.

2. Use a mortgage calculator - Use the above mortgage refinance calculator to get a general idea of whether it makes sense for you to refinance from a 30-year to 15-year mortgage. Enter information regarding your original loan, the interest rate, the term length, and your current monthly payment. 

3. Find a loan program to meet your needs - When you enter your contact information, we’ll be in touch with a range of loan options to improve your mortgage situation. We’ll tell you which documents you need to submit to approve your loan. 

4. Ready your home for an appraisal - You almost always need an appraisal before closing on a mortgage refinance. Certain exemptions exist for FHA, VA, or USDA loans. 

5. Prepare for the closing - Like in your initial mortgage closing, you’ll go over the loan details and sign the necessary documents. This is also when you’ll pay any closing costs that aren’t rolled into the loan. 

When you’re ready to get started on a refinance from 30- to 15-year mortgage, schedule an appointment online for a free mortgage review. You can also call us at (866) 889-6896 with any questions about your mortgage or the refinancing process. 

Should I refinance for a shorter loan term?

The decision to refinance from 30- to 15-year mortgage options will rely on your personal financial standing and ambitions. However, if you want to own your home faster, this is the most efficient way to meet that goal. Chances are that interest rates won’t continue to stay in these historically low ranges for much longer. If you think a refinance is your way forward, let us know.