Mortgage Refinance rates are at extremely low levels for both 15 and 30-year mortgage loans. How do you compare mortgage rates to decide which home loan is best for you? Here are the pros and cons comparing 15 and 30 year mortgage refinance rates to help you make an informed decision on your next home mortgage loan.
How to Compare Mortgage Rates
15 year refinance rates are an extremely popular option for mortgage refinancing with interest rates dipping below 3 percent according to a recent lender survey. Refinancing your home with 15-year mortgage rates can save you a bundle from lender finance charges despite slightly higher monthly payments.
If you choose to refinance with 15-year mortgage rates you can expect to pay several hundred dollars a month more than if you had a 30 year term length. The payment on a $200,000 home loan, even with interest rates as low as 2.89% for a 15-year fixed rate home loan, would be $1,370. The same $200,000 home loan with today’s 30-year fixed mortgage rates of 3.6% would be $910 per month. That’s a difference of $5,520 per year.
If your budget can’t handle paying an extra $460 per month on a 15-year mortgage you might not even be considering refinancing this way. The upside of 15-year mortgage rates is that in the previous example the interest paid is about $47,000 instead of $128,000 with 30-year mortgage rates. As you can see the savings realized by shortening your term-length can be significant.
The risk with a 15-year mortgage on a tight budget is that you’ll hit a snag with your finances and miss a payment. The financial ramifications of missed mortgage payments go much further than just a hit on your credit score. Late payments exclude you from government refinance programs like the Home Affordable Refinance Program (HARP 3.0).
Another downside of low refinance rates is the hit you’ll take on your housing interest tax deduction. Most homeowners don’t think about the impact of refinancing with today’s ultra-low interest rates until tax time when they see how much their tax deduction has gone down. This could result in increased tax liability in the spring.
30 Year Refinance Rates Are Cheap Too
Compare mortgage rates on 30-year fixed rate home loans and you’ll find they are currently three-quarters of a point higher than their 15-year counterparts. These are the lowest levels for 30-year refinance rates ever. If you need the security of a low payment that won’t change over time, 30-year mortgage refinancing could be the best choice.
If the higher payment isn’t an issue how do you choose which type is right for you? Choosing 15-year mortgage refinancing is like making four extra payments a year, building equity in your home at a much faster rate. If you’re underwater in your existing home loan, 15-year refinance rates can help get you right-side up quickly,
Common Mortgage Refinancing Mistakes
When choosing a term-length for your next home loan one common mortgage mistake is lengthening the term. The test of how good of a deal you’re getting comes not from getting the lowest refinance rates but how long it’s going to take to recoup your expenses. Choosing a longer term-length, going from 15 to 30 years for example, makes it impossible to break even. Lengthening your term-length is a losing proposition for mortgage refinancing no matter how you look at it.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
With these interest rates being so low I would love to pay my home off in 15 years. It’s nice to have a smaller payment over 30 years but when we look at the big picture of having your home paid off in as little as 15 years is great for retirement savings.