Refinance to a 15-year Fixed Mortgage and Save Thousands!

Refinance to a 15 year fixed mortgage and save thousands!

With mortgage interest rates as low as we’ve seen them ever, you may be considering a refinance. Advantages of reducing your monthly payment to increase your cash flow is a big draw for some, but more and more and trying to figure out how to pay off that mortgage debt faster. 

Reducing your term has become a reality for some now that a 15-year fixed mortgage payment fits their budgets along with these interest rates being in the low to mid 3 percent range right now. Your payment may go up slightly, but it’s worth it in the end and it’ll be a great way of impressing your financial planner at your next check-up! Don’t get me wrong, a 30-year fixed is always an option to save you interest and monthly payments, you can always make a payment on the 30-year fixed as if you were paying down the mortgage at the same term as you were with your current mortgage. That’s an easy calculation.  

Below is an example of a common scenario many are pondering right now. How much more will it cost me per month to go down to a 15-year fixed and what will this ultimately save me over the live of the loan?

Example –

Current rate = 5.25% on a 30-year fixed with 23 years left to pay

Original loan amount $250,000 now with a balance of $220,965.54

Monthly Payment of $1,380.51

New 15 year fixed rate = 3.25%

Payment = $1,552.67

Increases Payment by $172.16 but cut out 8 years of mortgage payments!

This saves an unbelievable $101,540.16 in total payments! How can you not afford to consider this refinance option? 

Another common way of reducing the term is to pay one extra principal and interest payment a year. Many divide this up over the year so it’s easier to obtain the goal. Here’s an example…

New $200,000 loan amount – 4% rate / 30 years fixed

Minimum Payment = $ 954.84/month

Add 1/12 ($79.57) of that payment to your monthly payment so you in total pay 1 extra payment a year.  You can always go back to the lower payment as well.

The payment is now $1,034.41

You’ll then be paying the loan off in 311 payments instead of 360 and saving over 4 years of additional payments and $22,040 over the life of the loan!

*Remember when adding additional funds to your payment, you need to specify that the additional funds go toward principal and not future payments.

Upside down? There may be some great solutions for you including some changes to the refinance rules that have no loan-to-value limits coming in March. Call your mortgage professional to learn more, but remember that many lenders may not have the full program that Fannie Mae & Freddie Mac are offering. Be sure to ask if the lender will be refinancing your mortgage direct with these institutions. If not, there may be increased rates or overlays that reduce the capabilities of the HARP refinance. HARP is not a modification program either and won’t hurt your credit!

Refinancing, even if you just did this a couple years ago is still a great tool to save you money. With rates extremely low, the no closing cost options are very appealing especially if you just refinanced not long ago and you don’t want to either right another check or lose equity by rolling in the closing costs. It’s a great way to reduce risk as well. For instance, what if you plan to move in the future, you won’t be kicking yourself that you refinanced and didn’t recoup all of the benefits yet. The drawback to a no closing cost loan is the opportunity to realize even more savings if you decide to stay in your home for longer.

I hope this helps people that are pondering a possible refinance. As always, call your local professional to help walk you through the options. Happy New Year! 

Dan Eveland

Mortgage Banker – NMLS # 279274

763-202-7600

www.WhatIsYourAddress.com