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Refinancing is a great way to lower your monthly mortgage payment and save money on interest throughout your repayment period. But refinancing won't always lower your monthly payment. If you refinance to a 15-year mortgage from a loan with a longer term, your monthly payment could climb. But it could still save you money long-term to refinance your existing mortgage to a 15-year loan. Here, we'll help you walk through your options.
Can I refinance to a 15-year mortgage?
Whether you have a 30-year mortgage, a 20-year mortgage, or an existing 15-year mortgage, refinancing to a 15-year is certainly possible. To get approved to refinance, you'll need to meet a few criteria:
- Have a solid credit score
- Have a reasonable debt-to-income ratio
- Have a steady job or source of income
As long as you meet these requirements, a lender should let you refinance to whatever loan term you want. But don't assume you'll qualify for a refinance off the bat just because you're an existing borrower.
How can refinancing to a 15-year mortgage save me money?
If you currently have a 30- or 20-year loan, refinancing to a 15-year mortgage can save you money in a few ways.
First, you'll likely pay a lower interest rate. 15-year mortgage rates are lower than the rates a lender will charge for a 30- or 20-year loan. The reason? The lender is taking on less risk and is getting repaid sooner. As such, you may, for example, get an interest rate of 3% on a 15-year mortgage and a rate of 3.5% on a 30-year loan.
Second, with a 15-year mortgage, you're paying off your home loan in a shorter period of time. That will, in turn, result in paying less interest over the life of your loan.
One thing to keep in mind: Refinancing from a 30- or 20-year mortgage to a 15-year home loan will generally cause your monthly payment to go up, even if you manage to snag a much lower interest rate. But while you might face a higher monthly payment, your lifetime payments will be lower with a 15-year mortgage refinance -- because you'll be paying a lot less interest.
Should I refinance to a 15-year mortgage?
It pays to refinance to a 15-year mortgage if refinance rates are low across the board and you can lock in a much lower interest rate on your home loan than what you're currently paying. It also makes sense to refinance to a 15-year mortgage if you want your home paid off sooner or in time for a certain milestone. For example, if you're in your 50s, refinancing to a 15-year mortgage could make it possible to have your home paid off by retirement.
Before you decide to refinance to a 15-year mortgage, make sure you can afford the monthly payment that comes with a shorter loan term. To see what your payments will look like, use this mortgage calculator. It will show you what you might pay in principal and interest each month and will also outline some of the other monthly housing expenses you might pay.
If your monthly payment with a 15-year mortgage is too high for your comfort zone, then refinancing to a longer loan term may be a better bet. The last thing you want to do is refinance to a 15-year mortgage and fall behind on it.
If you're interested in refinancing to a 15-year mortgage, get offers from multiple refinance lenders. You may find that one lender offers a lower interest rate or less expensive closing costs on your refinance than another. You can start with your current lender to seek out quotes, but don't assume that's the best deal you'll get on your new loan. Rate shopping is one of the smartest moves you can make once you've decided to refinance.
Still have questions?
Here are some other questions we've answered:
The Ascent's best mortgage refinance lenders
Refinancing your mortgage could save you hundreds of dollars for your monthly mortgage payment and secure you tens of thousands of dollars in long-term savings. Our experts have reviewed the most popular mortgage refinance companies to find the best options. Some of our experts have even used these lenders themselves to cut their costs.
FAQs
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Yes. You can generally refinance from one loan term to another without a problem. You don't have to keep the term that applies to your current mortgage.
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Refinancing to a 15-year mortgage will generally raise your monthly payments but save you money on interest in the course of your total repayment period. As such, going from a longer loan to a 15-year loan could make a lot of financial sense.
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With a 15-year mortgage, your monthly payment will likely go up, but you'll also pay less interest on your home loan all-in. As such, while you won't save on your monthly payments, you'll save on a lifetime basis.
Our Mortgages Expert
Maurie Backman is a personal finance writer who covers topics ranging from Social Security to credit cards to mortgages to REITs. She also has an editing background and appears on live podcasts to talk about financial matters.
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