Hi all: I've been studying the idea of refinancing into a 15 year fixed mortgage from a 30 year mortgage and it can make a lot of sense depending on your goals. Realize that 32% of Americans own their homes outright and it's most people's goal to eventually own their home. With more uncertain times predicted this year, many homeowners are seeking safety with 30 year or even 15 year loans.
If you're wanting security and can afford it, 15 year loans can be had for under 5% O.A.C. I think this can be a great alternative. Not only will you pay your home off in 15 years but the amount of interest you'll pay on your loan will be far less than on a 30 year mortgage. Expect to pay roughly 20% more on your payment than on a 30 year mortgage.
Another way to pay off your mortgage quicker is to automatically pay more toward your principal every month. If you make the equivalent of 2 extra payments/year, you will pay off your mortgage in 15 years. Obviously, this requires quite a bit of discipline. There are programs out there commonly referred to as Mortgage Accelerator Programs that can accomplish the same idea. I understand these are very popular in Europe. If you pursue an idea like this, just make sure you do your homework. Remember in theory every idea sounds good. It just might not be the best thing for you.
In closing, consider accelerating the payments on your home if you can. I know this runs contrary to some of the advice out there but you need to ask yourself what camp you're in. I hope this helps. Have a great day!
Paul
Paul McFadden
Thanks, Eric. Good luck with this idea. Take care.
Paul
I always tell people that they can pay off a 30 year in 15 years but that they cannot pay a 15 year over 30 years. In other words, even if a borrower can afford a higher payment now and wants to enjoy a slightly low interest rate, what do things look like 7-10 years down the road?
I don't like refinancing people out of a big payment, it's a waste of money given the closing costs.
Thanks, Rebecca. That's a nice niche you're in. I agree with all your comments above.
Paul
Oh how the rates have changed. I would love to see that sub 5% interest rate again on the 15yr mortgage! :)
That may not happen for a while. Perhaps this Fall or Winter again. Thanks, Casey!
Paul
The best way to build equity is to pay down the principal of your mortage. You can do a 15 year am without refinancing but it takes "choice." A 15 year mortgage forces the issue and demands the choice! This flies in the face of all the models of equity repositioning, tax benefits, yada yada yada, but I love a 15 year mortgage...as long as they can afford it monthly OR adjust their spending-style to afford it. I'll probably get blasted by the repositioning contingent, but of all the people that I have spoken with that own their homes outright...they would not choose a mortgage over the tax benefits. Maybe they are unsophisticated people that are leaving money on the table, but it works for them.
Thanks, Rich. I appreciate your comments. Have a great day!
Paul