Refinancing remains at the top of the to-do lists of mortgage lenders as mortgage rates move to new mortgage lows.
If you are thinking of taking out a new loan with a lower, money-saving rate, your mind will automatically go to a 30-year fixed-term mortgage. It’s the most popular type of home loan in America, and maybe it’s what you already have.
But if you have been in your home for a few years, you can refinance in a 15-year mortgage that will not cover your debt and interest costs. While monthly payments may be steeper, loans come with lower interest rates – currently as low as 1,875%.
Here are four tips on how to get the best deal when refinancing in a 15 year mortgage.
1. Compare loans
Most mortgage lenders offer both 30- and 15-year terms. Compare the current average rates between the two loan products, then zero in on a few lenders and look at the spreads.
If 15-year mortgage rates do not seem to be substantially lower, it may not seem worthwhile to accept the stiffer monthly payment that comes with the loan in the shorter term.
However, the savings can be considerable in the long run, especially with rates that are now at or near all. You could end up with a payment that is very similar to what you have with your current 30 year mortgage.
Rates are now averaging a record low of 2.88% for a 30-year fixed-rate mortgage and 2.44% for a 15-year loan, according to mortgage firm Freddie Mac. Let’s say you are trying to decide if you need to refinance a $ 200,000 mortgage balance for 15 or 30 years, at average rates.
Your monthly payment would be $ 1,327 with a 15-year mortgage at 2.44%, yet only $ 830 with a 30-year loan at 2.88%. But you would pay total interest of about $ 39,000 on the loan in the short term, against around $ 99,000 – $ 60,000 more – over the course of the 30-year mortgage.
2. Shop around for a great rate
Fifteen-year mortgage has some advantages and disadvantages.
The primary disadvantage is the payment of the plumper, which can make it more difficult for you to meet other expenses and can become an enormous problem if you lose your job.
The benefits include: a lower interest rate; lower interest costs for longevity; and the ability to repay the loan and build equivalent in your home faster.
If you decide to go ahead with a mortgage refinance after 15 years, check the rates of multiple lenders in your area and check them side by side to find your best deal.
While researching online rates, you may want to look at the websites of major banks that operate where you live. They often have similar prices on their mortgage, but you can find one that offers a cheaper rate than more favorable terms.
Small local banks and credit unions often have affordable rates, but the approval processes can be slower.
3. Make yourself look your best as a loan
A lender wants to feel confident that you are repaying the loan and not defaulting – especially at a time when so many people are financially out of the pandemic. A very good (740 to 799) as well as an excellent (800 or higher) credit score will help to provide that insurance.
If you do not know your credit score, you can check it out for free.
If you could improve your score, get copies of your credit reports from the three major credit reporting agencies (Equifax, TransUnion and Experian) and make sure they are accurate.
Bad information – such as debts that you are not, or debts that are too old and should have fallen – can weigh on your credit score.
Shorten your score by paying off debt (especially credit card balances), making payments on time and not opening new credit accounts when you shop for a home loan.
4. Pay as much as you can in advance
If you do not have a lot of money in your home, making a larger down payment on your refinance loan can help you land an extremely low 15 year mortgage on your mortgage.
Like a decent credit score, a larger payout is a way to demonstrate to the lender that you are at a good risk and earning a low rate. If you are investing heavily in your home, you are less likely to run away from your mortgage.
Plus, making a down payment large enough to give you at least 20% deductible in your home will prevent cumbersome private mortgage insurance (PMI) premiums from being accepted on your home payments.
