While most homeowners want 30-year mortgages because they offer lower monthly payments, there are several reasons why borrowers may want to refinance to a 15-year loan if they meet certain qualifications. Those who have reached the 20 percent equity point and have the finances on hand to pay a higher monthly payment will find that they can pay off their home much more quickly with a 15-year mortgage.
In addition to paying down their principal more quickly, 15-year notes do have a few other benefits. The interest rate on these mortgages is often a little lower than those on a 30-year note. Even with the higher principal payment, the lower interest often makes 15-year loans quite affordable. In fact, with the right interest rate, it is possible that a borrower's monthly payment on a 15-year mortgage would be less than $100 more than what they were paying on a 30-year mortgage.
However, while 15-year mortgages do generally come with lower interest rates, borrowers need to have a good credit score — 700 or above. According to Ellie Mae, most who were approved for refinancing to a 15-year loan spent less than 25 percent of their income on their mortgage and had at most a debt-to-income ratio of 38 percent.
Of course, there are some additional costs to refinancing, including closing costs, that must either be paid upfront or rolled into the loan, increasing the monthly payment a bit more.