Is A 30-year or 15-year Mortgage the Right Choice for Me?
Mortgage rates are slowly rising, but it’s still a great time to refinance. If you have been looking for ways to save money every month, your mortgage could be a great place to start. When you received your mortgage, you may not have paid attention to the interest rate or the payback terms, just the required minimum monthly payment. If you received your mortgage in 2011 or earlier, it’s worthwhile to compare mortgage rates and see what savings are available. Rates are still about half of what they were a few years ago, leaving you a chance to benefit from refinancing.
Deciding how you want to save will help you pick the best refinance option for you.
Want to Save Now?
If you are looking for monthly savings now, you can refinance to a 30-year loan from any type of mortgage. The monthly payment decreases because you are financing the balance that is left on your current mortgage for a new 30-year term. By refinancing, it’s possible to drop PMI (private mortgage insurance) earlier in your loan which will give you extra savings in your monthly payments. If your loan is less than 80% of your home’s current value, you will not need PMI. With mortgage rates still low, you would be borrowing the money at a lower rate than the first time you borrowed for a new term which creates monthly savings. If you have an FHA loan a 30-year refinance is a great option since you will no longer have to pay an annual FHA insurance fee in addition to PMI.
You might see many offers to refinance to a 15-year mortgage to save you thousands of dollars. While this is true, you will not see the savings right now. Your monthly payment will likely be higher than your current mortgage payment, but you will save money over the term of the loan. The savings comes from paying the loan off faster, causing you to pay less interest over time. The refinanced amount uses your current home value so you might be able to drop PMI on your loan as well if you’re currently paying it.