When you first bought your home, you most likely took out a 30 year mortgage to finance it. With interest rates now at historically lows, refinancing to a lower interest rate and lower monthly payment can be an attractive option for you. If so, should you refinance to a 30-year mortgage or a 15-year mortgage? Consider the following 3 things when deciding.
1 – Is it worth it to refinance to a 15 year mortgage?
There may be significant closing costs in refinancing your existing mortgage to a 15-year mortgage so make sure you know what your refinance settlement costs will be before you decide. Depending on your loan balance and the difference in interest rates, you may find that the amount you’ll save each monthly will be less that the costs of your refinancing settlement costs.
2 – Check out your cash flow
Refinancing to a 15-year mortgage may result in larger monthly payments that you currently have. Make sure you have the monthly cash flow to afford the additional payment in the event that an unexpected expense pops up.
3 – Watch out for prepayment penalties
Before you make your final decision, make sure you check your loan documents for any penalties you would have to pay for prepaying your original mortgage. If there are prepayment penalties, you may be able to pay a portion of your loan back without penalty.
Knowing all the costs and conditions of refinancing your mortgage into a 15 year mortgage will allow you to make an informed decision as to whether or not it makes sense to do it.