When Does Refinancing Into a 15-Year Mortgage Make Sense?

If you’re trying to pay off your mortgage loan as quickly as possible, you might be wondering whether to make higher payments each month to get the job done. But can you pay a 30 year mortgage in 15 years? It’s possible, but in many cases it might be easier or cheaper to refinance to a 15-year mortgage instead.

Homeowners often refinance to get a better rate on their mortgage payments, but that’s not the only reason to refinance. You can also refinance to change your mortgage term, too — while still taking advantage of those lower rates.

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In this article

    When should you refinance?

    There are many times when it makes sense to consider refinancing your mortgage loan.

    One of the main drivers behind refinancing is to save money by lowering your interest rate. If you’re struggling to pay your mortgage note and need to find a way to cut down on your mortgage-related costs, you might be able to refinance to a lower interest rate. In most cases, doing so will help you save money on your monthly payments and the total amount you pay in interest over the life of your loan.

    Or, if you want to pay off your loan more quickly, you can opt to refinance to a shorter loan term. Refinancing from a 30-year loan to a 15-year loan will help you pay off your home a lot faster and save you money in the interim.

    In many cases, 15-year mortgages will have lower interest rates than 30-year mortgages, and you’ll be paying interest for a shorter period of time, too. Both help you save money on the total amount of interest you pay, but you’ll need to be sure you can afford the higher monthly payments before you take the leap.

    Another reason to refinance is to change your loan from one type to another. Let’s say you bought your home with an adjustable-rate mortgage. If you’re approaching the end of the fixed-rate period of your ARM, you may want to refinance to a fixed-rate loan instead to avoid the fluctuations in interest.

    And, sometimes it’s a good idea to refinance so you can tap into your home equity to get access to large sums of cash. This can be necessary if you want to pay off debt, deal with an emergency or take advantage of an unexpected opportunity.

    There are plenty of drivers behind refinancing. Ultimately, the reason for refinancing is a personal one, and each person has their own goals and reasons for refinancing. 

    Read: When to Refinance Your Mortgage

    Benefits of refinancing to a 15-year mortgage

    Is it worth refinancing to a 15 year mortgage? It can be. There are plenty of reasons to refinance to a 15-year mortgage, and most revolve around time and money.

    The benefits of refinancing to a 15-year mortgage include:

    • Lower rates: In many cases, 15-year fixed mortgages will come with lower interest rates than 30-year mortgages, though it will depend on a number of different factors. 
    • Saving money: You can save a lot of money over the life of the loan when you refinance from a 30-year loan to a 15-year loan due to a lower interest rate and a shorter period of time in which you’ll be stuck paying interest.
    • Equity: When you’re making larger 15-year mortgage payments, it can help you pay down your interest quickly. You can, in turn, chip away at the loan principal much faster than you could with a longer mortgage term. 
    • Out of debt faster: You’re paying down your mortgage loan in half the time when you switch from a 30- to a 15-year mortgage loan. That means you’ll be out of debt much faster — at least when it comes to your mortgage. 

    Drawbacks of refinancing to a 15-year mortgage

    There are a few drawbacks to refinancing your mortgage to a 15-year loan. Do the benefits outweigh the drawbacks? You’ll have to decide the answer on that one, but some of the drawbacks include:

    • Higher monthly payment: Refinancing to a 15-year loan will cost you more each month on your loan payments. You could end up digging a hole that’s hard to get out of or have less money for emergencies or repairs.
    • Close to paying off your loan anyway: If you’re close to paying off your mortgage loan, it could cost more than it’s worth to refinance to a shorter term. You might be better off just paying down your loan faster each month rather than shelling out the money to refi. 
    • Less money for savings or investments: Refinancing could make you so cash strapped that you can’t invest or save as much as you want to. You may be able to make more in earned interest than you’ll save with a refinance, so do the math before you decide. 
    • Other debts are more pressing: If you have a lot of other high-interest debt, it could be worthwhile to pay off your other debt first before refinancing due to what the other debts are costing you in interest.
    • The cost of refinancing: When you refinance you pay closing costs similar to the ones you paid with your first mortgage. Closing costs generally range from 2% to 5% of the loan amount, which can make it too expensive to refinance when weighed against what you’ll save. 

    How to refinance your mortgage

    If you want to refinance, you can probably complete most of the application and approval process from your home computer.

    To refinance your mortgage, you should:

    1. Research lenders, their rates, as well as any fees they charge. You need to narrow it down to the lenders that would work for your needs before blindly submitting applications to refinance your loan.  
    2. Submit all lender mortgage applications within the same general time frame. In general, you’ll have 45 days from the first hard pull to your credit for all other mortgage-related inquiries to be lumped together as one. This will minimize any damage to your credit score from hard pulls. 
    3. Once all offers are in, you need to decide on a lender and lock in an interest rate. Doing this ensures you’ll get the interest rate you want. If you wait, rates can fluctuate and end up costing you more. 
    4. Submit any required paperwork and financial information to get the final approval on your loan. This process can take a while, so make sure you have the documents you’ll need on hand to expedite the process. 
    5. Close on your loan. Closing on a refi will be similar to the first time you closed on your home. You’ll have to pay closing costs and sign the documents to close on the loan. 

    Read: How to Offset the New Mortgage Refinance Fees

    Is refinancing worth it?

    Whether refinancing to a 15-year fixed mortgage is worth it will depend on your goals for refinancing. This type of refi will likely lower your interest rate and shorten the life of your loan

    You’ll build equity at a much faster rate than you would with a 30-year loan, but you’ll be paying more each month since you’re paying down your loan in half the time. That can be tough if you’re on a limited budget or your income fluctuates from month to month in a sales or contract position.

    It’s worth looking into if your goals align with what the outcome of refinancing would be. At the very least, you should talk to a lender to see what possibilities exist.

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    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Lauren Ward

    Contributing Writer

    Lauren Ward is a personal finance writer living in Virginia’s Blue Ridge Mountains with her husband and three children. In her spare time she enjoys board games and gardening.

    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Editor

      Angelica Leicht is a writer and editor who specializes in everything mortgage-related for The Simple Dollar. Her work has spanned topics that include lending product reviews, interest rate trends, racial biases in mortgage lending and the role of fintech in lending practices, and has appeared in publications such as Interest, Bankrate, The Spruce, Houston Press and VeryWell, among others.