It's Not All About The Monthly Payment
When many people think about refinancing their homes, they concentrate on getting a low monthly payment. A 30 year fixed-rate mortgage often can get you a lower monthly rate. However, if you can afford a higher monthly payment, you might want to consider refinancing with a 15 year fixed-rate loan instead. A 15 year mortgage saves you on interest, and will leave you with a paid-off house twice as fast. You may be surprised at how much money you can save by paying off your house in half the time.
The 30 Year Mortgage
The 30 year mortgage is very popular with many people. At today's home prices, 30 year mortgages offer loans that a lot of people can afford. However, if you can afford higher monthly payments, it might not be your best bet. For example, let's say that you owe $200,000 on your house. You decide to refinance your home for 30 years at the rate of 5.56%. That's a great rate, and may save you a lot of money over what you're currently paying. Your monthly payment on this loan would be $1l43. It sounds like a reasonable home payment. Over the life of the loan, however, you would end up making a total of $411,480 in payments. You would pay more than half of the original purchase price to your finance company in interest. There might be a better way.
The 15 Year Mortgage
If you refinanced your home for 15 years, you will have to pay a little more every month, but not double the amount like you would expect. For one thing, you would be able to get a lower interest rate with a 15 year mortgage, perhaps 5.02%. This saves you money on interest payments already. Your monthly payment for a 15 year mortgage would be $1584 a month. Over the life of your loan, you would send $285,120 to your mortgage company. You'd give the bank less than half of the purchase price of the home in interest payments, and over the life of the loan, you'd save $126,360 over the price you'd pay for the 30 year loan. If you can afford to pay $440 a month more in payments, that's a fantastic savings.
Other Options
Not everyone can afford an extra $440 a month on their mortgage payment. However, there are other options. If you owed less on your home, a 15 year mortgage refinance would cost you less money. If you paid down extra principal when you could, perhaps applying your income tax return or Christmas bonuses to your mortgage, you could refinance your mortgage for 15 years a few years from now and owe less. A 15 year mortgage for $160,000 only costs $1267 a month. If you have owned your home for a while already, you may have already paid down some of the principal on your mortgage. You may be able to afford a 15 year mortgage at this point, especially if your income has gone up since you first took out your home loan. The 15 year fixed mortgage can save a lot of money, if you're willing to make a larger monthly payment.
