Thanks to this year’s historically low mortgage rates, refinancing remains a popular activity among homeowners — and it has taken on more urgency as a new refi fee threatens to push rates higher this fall.
A 30-year fixed-rate mortgage might be a borrower’s automatic first choice for a refi loan. But if you’ve been in your house a few years, refinancing to a 15-year mortgage can keep you from dragging out the debt and piling up massive interest costs.
The monthly payments on a 15-year home loan can be steeper, but the interest rates are lower: currently near an all-time low at an average 2.37%, which is one-half of 1 percentage point (0.50) below the typical 30-year mortgage rate, according to mortgage company Freddie Mac.
Some borrowers in 2020 have been able to score 15-year rates in the low 2s or even under 2%.
Could you? Here are four tips on how to get the very best deal when refinancing into a 15-year mortgage.
1. Run the numbers on 30- and 15-year 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 couple of lenders and see how their 30- and 15-year rates differ.
If 15-year mortgage rates don’t seem substantially lower, it may not seem worthwhile to accept the stiffer monthly payment that comes with the shorter-term loan.
Still, the long-haul savings can be considerable.
Freddie Mac says rates are now averaging 2.87% for a 30-year fixed-rate mortgage, versus 2.37% for the 15-year option. Let’s say you’re trying to decide whether to refinance a $200,000 mortgage balance for either 15 or 30 years at today’s average rates.
Your monthly payment would be $1,321