Refinancing: 30 Year Loan Vs. 15 Year LoanYou're probably have seen the headlines about record low mortgage rates and refinance rates. You might also be looking into refinancing. The loan of choice for most homeowners is 30 year loans but you should also consider a 15 year loan. Right now 30 year refinance rates are around 4.00% while 15 year rates are 75 basis points less at 3.25%. You can even find lenders who will give you a 15 year rate as low as 2.75% when you're willing to pay points. Mortgage points allow you to "buy down" the rate on a loan. 1 point is equal to 1% of a loan and you pay it upfront. Points can also be rolled into a loan. The only drawback to a 15 year loan is you'll have higher monthly mortgage payments. If you can afford the payments on a 15 year loan you should go ahead and take the plunge. I recently refinanced a $300,000 loan from a 30 rate of 4.875% to a 15 year loan at 3.25%. Using a mortgage calculator I realized I'm going to save $136,167 in mortgage interest with a 15 year loan, plus I'll own my home in half the time! Again, the only negative is my monthly mortgage payments are higher but I can afford higher payments. I figured I'm also better off paying down my loan instead of saving the money in an account since the best CD rates (12 months) and savings rates are around 1.00%. When I refinanced I had an option of a 30 year loan at 4.00% or a 15 year loan at 3.25%. Here are the numbers on a $300,000 loan:
As you can see my monthly payments are higher at $2,108.01 with a 15 year loan instead of payments of $1432.25 with a 30 year loan. The interest savings on a 15 loan come to $136,166.24! Making refinancing to a 15 year loan a no brainier! You can use our free mortgage calculator to see how much money you'll save refinancing to a 15 year mortgage loan. |
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