How much money would I save going from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage?
I've been seeing the Rocket Mortgage ad that says switching from a 30-year to a 15-year mortgage will save you money. What factors should I consider in doing this?
Answers | 5
1) How long do you have left on your current 30-year mortgage?
Are you 8 or 10 years into a 30-year mortgage already? If so, read #2 for sure.
2) How much will it cost to refinance?
There are always closing costs to consider when refinancing. You need to look at how much you anticipate saving in interest versus the closing costs (regardless of whether or not they're financed into the loan). If you only have 20 years left on your term or so, sometimes you can achieve a 15-year payoff of your current balance by simply adding a little more to your current payment. A quality mortgage professional worth their salt will do these calculations for you without worrying about "selling a loan."
3) Can you afford the new payment?
Sure, you will more than likely save money in the long run, but if the new higher payment isn't something you can handle on a long-term basis, then just consider increasing your current payment by adding some additional principal to each payment when you can. Unless you're going from a much higher 30-year rate to a really low 15-year rate, your payment is GOING to increase.
Consistency over time is always the key to paying off a mortgage early, but sometimes just committing to paying extra principal when you receive extra bonuses, overtime, or tax refunds can make an enormous difference in your payback period.