Mortgage rates have been decreasing nationwide, and rates are so low that they seem unbeatable, offering the best value possible.
The average rate for a 15-year loan is 2.63%, about 70 points lower than a comparable rate for a 30-year loan. Such low rates and large rate discrepancies make refinancing from a 30-year mortgage to a 15-year mortgage highly enticing. But some things should be taken to account before immediately making the switch from one type of fixed mortgage rate loan to another: payment, interest, and taxes.
Generally, when you decide to refinance from a 30-year to a 15-year mortgage, you can expect your monthly payment to go up. The increase in your monthly payment is the trade-off that you get for significantly reduced interest rates. It’s also an indicator of your loan’s shorter duration period. One more thing to take into account before refinancing to a 15-year loan is that you need a good credit score to be offered the best rates in the market. But, the advantage of opting for a 15-year mortgage is obvious. Buying a house will take a shorter time, which means less expense on the payment of interest.
When it comes down to it, with a 30-year loan, the total interest can equal or come close to the amount of the original loan. When you opt to refinance to a 15-year loan, the total interest reduces significantly because the rate is lower and the loan is scheduled to be paid off in less time.
But before fully committing to a 15-year mortgage, you need to take tax deductions into account. Normally, deduction equivalent to your marginal tax rate multiplied by your mortgage interest payment are awarded. With enough tax benefits, you may be able to forego refinancing to a 15-year old mortgage. Though the general rule of thumb is that if your 30-year mortgage is 5% or close, it’s a good idea to refinance. For home owners in Springfield, Missouri, for example, it’s advantageous to refinance to a 15-year mortgage because a 30-year loan has an interest of 4.25% while a 15-year one only has 3.375%.
Do you need more financing advice? Get them straight from mortgage bankers who have been in the real estate financing field for years! PrimeLending offers consultation to interested homebuyers and investors in Missouri and all other US states.