Are 15 Year Mortgage Rates Always The Best Option?

If you’re in the market for mortgage refinancing you might have noticed lenders and programs pushing 15 year mortgage rates. There’s been a strong push for homeowners in the United States to pay off their home loans faster. Even the government is recommending shorter mortgage term lengths to get out of debt faster. Is it really in your best interest to refinance with 15 year mortgage rates? Here are the pros and cons of shortening your term length to help you make an informed decision for your next home loan.

15 Year Mortgage Rates For Underwater Homeowners

Another push for 15 year mortgage rates is for underwater homeowners with the government refinance program HARP 2.0. The reason for this is that shorter term-lengths like those offered with 15 year mortgage rates pay down your balance at a faster rate, thus building equity quickly and getting you right-side up.

15 year mortgage rates are a bit lower than 30 year fixed rates right now meaning the payment for most people will only be a few hundred dollars more. At first glance this sounds like a good idea; however, as the saying goes what’s good for Peter isn’t always good for Paul. If you’re paying $1350 on a 30-year fixed rate mortgage why not switch to a 15 year term length if the payment won’t go up by much? Historically low refinance rates make this possible and can save you a boatload of cash from mortgage interest.

If you’re currently paying mortgage insurance choosing 15 year mortgage rates will get you to the point where you can cancel your mortgage insurance more quickly with the side benefit of building ownership in your home.

Is There a Downside to 15 Year Mortgage Rates?

Because interest rates are so low right now you could make the argument that it’s not a bad time to carry debt, thus freeing up your cash for other things. It doesn’t take much to invest for a higher rate of return than what you’re paying in mortgage interest. The uncertainty hanging over our economy is still there; we’re not out of the woods with the housing market either. Even if you’ve got a respectful loan-to-value ratio now, who’s to say in a year or two that you won’t be underwater thanks to declining home values and a faltering economy?

If you qualify for mortgage refinancing you might consider refinancing for a lower payment to give yourself a little breathing room in your budget. (Especially if you’re paying on an Adjustable Rate Mortgage) Don’t get me wrong, equity is great but there’s no guarantee you’ll ever get it back when you sell your home. Paying that extra cash to pay down your mortgage could be wasted if you have to sell in a down market like the one we have now.

The point I’m making is not that 15-year mortgage rates are bad; simply that there’s more to consider with the big picture when refinancing your home. The fees that you pay for instance will make or break the deal that you’re getting. If you’re not able to break even recouping your out-of-pocket expenses from closing costs you’re going to be losing money no matter how low your refinance rates. One of the most common mortgage mistakes when refinancing is overpaying the loan origination fee or falling for unnecessary discount points. Remember, the less you pay at closing the more benefit you’ll get from today’s low refinance rates.