What is the benefit of refinancing to a 15-year mortgage?
Answers | 3
Yes, your loan is paid off in half the time - but you can also pay off a 30-year loan in 15 years if you made additional principal payments. The advantage of a 15-year loan is that you will receive a lower interest rate than on a 30-year loan, which when combined with the accelerated principal, saves a ton of interest over the term of the loan.
There are 2 kinds of financing:
1. Equity financing
2. Debt financing
The benefit of equity is no debt or manageable debt and the benefit of debt is being able to afford more debt.
Certainly, you can increase your payments. Keep in mind the other side of this equation. What is the value of the investment?
A $500,000 house with 20% down payment and a 30-year fixed rate mortgage will cost you around $1 million after adding up all the payments. What will the house be worth in 30 years?
If less than this, invest those surplus or extra payments into a higher-yielding investment (tax-deferred also works). Focus on getting that $1 million in equity rather than $1 million in a house that needs to be sold or refinanced to tap into that equity.
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