Benefits Going from 30 Year to 15 Year Mortgage

Article Posted by Expert Author: Tony Caro  on 09/09/2013

Many homeowners wonder whether it would be beneficial to refinance their existing loan from 30 years to 15 years.  The answer depends on your personal situation. But there are many benefits that can be gained by switching to a 15 year mortgage. First, let's compare one to the other.

The 30 Year Mortgage

In a 30-year mortgage, your payments are spread out over that time period. As well, you are more likely to have lower monthly payments with this option. As well, this option allows for families to find the right home for their needs without costing them too much per month in mortgage payments. Those homeowners having concerns about their cash flow may benefit more from the 30 year loan.

The 15 Year Mortgage

The 15-year mortgage may actually result in less being paid over the life of the loan. As well, this length of loan allows for equity to be built, which can mean increased received value for the payments you make, and over a shorter amount of time. The reason for this is that your payments will pay more towards the principle as opposed to the interest. Unfortunately, the monthly payments can be much higher with the 15 year option.

The most obvious would be the fact that you are able to pay your mortgage off much quicker with the 15 year option. Once the mortgage is paid off, you own your home free and clear. You will also save on the interest paid on the mortgage. Commonly, the interest rates on a 15 year mortgage are lower than the rate on a 30 year mortgage. This allows you to save even more money as you pay off your loan.

An Alternative: Pay Off Your 30 Year Mortgage In 15 Years

Many homeowners are now taking advantage of the benefits that come with having a 30 year mortgage, but paying it off in half the time. Not only does the 30 year mortgage come with lower monthly payments, but there is a lot of flexibility with how much money can go toward the loan every month.  Unless a prepayment penalty exists, homeowners can put as much toward their 30 year mortgage per month as they please.

In order to figure out how to pay a 30 year mortgage off in half the time, you will need to figure out how much it would cost you each month if you had a 15 year mortgage. Then, simply plan to pay that amount each month. However, it's important to make sure that any extra money be goes toward reducing the principal of your loan.

A big advantage to this alternative is that, when times are lean, you can simply make the lower, 30-year payment without the worry of falling behind. But one big potential disadvantage is that you could wind up having to pay the higher 30-year interest rate.

Refinancing From A 30 To A 15 Year Mortgage

If you have some equity left in your home and are already handling your monthly mortgage payments well, then it may make sense to refinance to a 15-year loan. But if you find you are basically living from month to month or don't feel as though you will be secure in your employment over the long term, then refinancing may not make sense.

A refinance home mortgage is in many cases a very good choice for homeowners to make.  But making a decision can be difficult. Knowing all of the pros and cons associated with your 15 or 30 year mortgage can mean that making an informed decision is easier than ever before.


Article Posted In:  Refinancing Options in Your City  Refinance Home Mortgage