Refinance Mortgage Rates are at their lowest levels of a lifetime yet many homeowners are still paying six-percent or higher on their home loans. If this is you and you’d like to take advantage of this 60-year low with today’s best mortgage lenders there are several common mortgage mistakes like choosing the wrong term length you’ll want to avoid. Here are several reasons you’ll want to consider shortening that term when mortgage refinancing AND how much you’ll save.
Why Choose a 15-year Mortgage Loan?
Right now fixed interest rates on a 15-year home loan are at their lowest levels in recorded history. You can lock in 3.3 percent on a shorter term where going with that 30-year mortgage will get you right around four percent. Why should you choose a 15-year term length for your next home loan? Interest rates are really can’t get much lower so there’s no question now is the time to snag today’s low refinance rates from lenders like Amerisave and Quicken Mortgage.
The same is true of interest rates on FHA loans and Jumbo mortgages for homeowners over the conforming loan limit. Choosing a 15 year term has several advantages ranging from rapidly building equity in your home to slashing the amount of interest you’re paying over time.
Downsides of a 15-Year Mortgage Loan
There is one downside to refinancing with a shorter term-length and if you’ve never had anything but a 30-year mortgage it could take some getting used to. The amortization schedule can be a little difficult to swallow for many homeowners. Loan amortization is the process of repaying your home loan over time and the shorter your term length the more rapidly this happens, meaning you’re paying a lot more month-to-month.
The common mortgage mistake of choosing a 30-year mortgage is stuffing your hard-earned cash in the lender’s pockets for no reason.
By definition a 15-year mortgage is paid in full after 15 years whereas with a 30-year mortgage your payments are spread out over 30 years. This means your payment will be approximately 48 percent higher than it would be if you took a full 30 years to repay the home loan. Higher mortgage payments might seem like a stretch for your budget; however, over time the savings will be significant. Consider how much of your monthly payment is applied to interest:
Paying on a 30-year, fixed-rate home loan after the first year 69 percent of your payment is applied to interest. Paying on the same home loan with a 15-year term length after the first year only 37 percent of your payment goes to interest. The rest is applied directly to paying down the principal loan balance.
You can learn more about avoiding common mistakes when mortgage refinancing by checking out my free Underground Mortgage Videos.