We’ve been hearing lately from our lender network that more homeowners are deciding to take advantage of super low rates for 15-year-mortgages to refinance their homes. It’s not for everyone since refinancing to a shorter term typically means making additional payments each month. But for people like Kevin Hunter of Tennessee, who actually bought a house last year with a 15-year-mortgage, the benefits come down to doing the math.
For Hunter, the shorter mortgage meant paying $500 more each month than the traditional 30-year-mortgage – but saving $120,000 in interest. The extra payments are ok with him and his wife, he said, because “we live within our means and aren’t living extravagantly.”
Over at Ohio’s Residential Finance Corp., senior loan officer Joanna MacKenzie Ross says she’s sensing a growing interest among some of their clients to focus more on future savings and long-term security. “There are definitely more people coming out of the woodwork who are qualified for this kind of refinance,” she said. (Average rates for a 15-year mortgage, by the way, were just 4 percent last week according to Freddie Mac).
We talked to several other lenders in our LendingTree network and found that most have noted an interest from their clients to refinance to a 15-year mortgage. In some cases, these refinances have increased from 5 percent to as much as 20 percent of their refinancing business. Brandon Shideler, a project manager with Sydion Financial in Washington, said that refinance appears to be particularly attractive to homeowners “who have a certain degree of job security and who are thinking of retirement and paying off their homes.”
Doing the math
In many cases, several lenders told us, the additional monthly difference in refinancing from a 30-year-mortgage can be just several hundred dollars.
Paying off a mortgage early by making extra payments while keeping the 30-year-loan is another way to reduce your long-term mortgage expense. That may be the better alternative in some cases, especially for those who are closer to paying off their mortgages. However, refinancing to a shorter term becomes an appealing option to a wider group of people when interest rates are as low as they have been.
Everybody’s situation will be different so it’s hard to provide a formulaic example of how much money you will save by switching from a 30-year mortgage. The total amount homeowners save in terms of interest and amount paid over lifetime depends on how long you’ve had the mortgage to begin with, your original interest rates, and other factors. LendingTree’s refinance mortgage calculator and loan payment calculator are good starting points as you move forward with your refinance.
By Anna Cearley, LendingTree/Tree.com
Photo credit: public domain image
Finally people are understanding that they must enter into 15 year mortgages in order to create a Patrimony over the term of their mortgages. Longer term mortgages or “miracle” mortgages as I call them, only make you think you are wealthier because you live in a larger or more expensive home but the truth is you are only playing the real estate market living on a “lent” home.
Remember that if you sell your home every 8 years and you purchase a better home with the proceeds of the sale which include: 1) equity invested originally; 2) equity amortized over the period; and 3) the ” price upside” or appreciation you really create wealth, otherwise you are living “la vida loca” wit “other peoples money”.
Saludos,
Fernando
Anna,
Funny you are writing about this subject as i am doing this very comparison for a few clients
being that the 15 years is under 4% it makes a ton of sense to do a 15 especially for people over 40. they potentially can have a home paid for before they retire.
here is an example
on $200,000 loan
30-yr @ 4.5% 15-yr @ 3.75%
Payment $1,013 mo $1,454 mo
additional payments $ 441 x 180 = $ 79,380
savings $1013 X 180 = $102,960
Net Savings $ 23,580
This is a very prime time to buy homes and refinance loans.
I don’t know when in History we’ll have all the stars aligned so perfectrly again.
Low Rates,
Low Home Prices
Verity of loan options
Much Continued Success
Racheli Refael Smilovits
Senior Mortgage Advisor
” Talking to you is like talking to 100 banks” (Client)
Thank you for the comments, Fernando and Racheli. For some people the 30-year mortgage may still be the most realistic way to finance a home but it’s good to see that others are evaluating their options. Great example with the math, Racheli. Good point about how it adds up for those who may be over the age of 40! Cheers and Saludos to you both.
Even with rates at an all-time low, it only makes sense to refi into a 15-year mortgage if the payment is less than or equal to the current payment. Our economy is too shaky to take on a larger payment. I have counseled many people who already have low rate 30-year fixed loans to stay with what they have an simply increase their monthly payment. I personally had a 15-year loan and had to refi back to a 30-year loan because I absolutely needed the flexibility that it offers.
In the end, it all depends on an individual’s circumstances.
Candee Lynn Wilson
Real Estate Broker
Hi, Candee. Thank you for your input, and for sharing a bit about your own personal decision on refinancing. Your comment that these decisions depend on an individual’s circumstances is a good one. We definitely encourage people to make smart financial decisions and it seems that for some people, though not all, it will make sense to pay a little more for the long-term savings. Thanks for joining the conversation and hope to see you again at the LendingTree blog!