A 15-Year Re-Fi? Why Not?


With mortgage rates at near-historic lows as 2009 draws to an end, the stampede to refinance (for those who qualify) isn’t abating. But should you turn your gaze to a 15-year refinance deal? Here are the pros — and the cons — before that decision.

A decision on a 15-year mortgage refinance certainly isn’t an easy one. On the plus side, you’ll pay off your mortgage loan more quickly, and pay less for your home (because you’re paying less on the total interest of your home loan).

In addition, while rates have edged up in recent weeks, overall interest rate levels are fairly low, and you’ll get a better deal with a 15-year loan than with a 30-year fixed-rate loan. According to the BankingMyWay Weekly Mortgage Rate Tracker, the average rate for a 15-year home loan right now is 4.66%. Compare that to the average 30-year mortgage, which sits at 5.23% this week.

On the downside, you’ll face higher monthly mortgage payments — meaning you’ll need a good flow of cash on a long-term basis to handle your commitment to a 15-year loan.

Let’s take a 15-year loan on a $200,000 mortgage at the 4.66% interest rate we pegged on BankingMyWay.com. Your monthly payment on that loan would be $1,546.39.

In addition, your total payment on the loan would be $278,350.65, and the total interest paid would be $78,350.65.

But on the 30-year loan with that 5.23%, your total monthly payment would only be $1,101.93. That’s the end of the good news. With the 30-year loan, you’d be facing a total home purchase amount of $396,695.68, and total interest payments of $196,695.68.

So, if you can afford the monthly payments, you’d save $118,345.03 on the purchase of your home under that scenario.

Of course, by refinancing, you’ll be chipping away at those future savings by paying fees up front to get a 15-year refinancing deal. One rule of thumb is you should get an interest rate of lower than 0.5% to take the trouble of refinancing your loan. That’s roughly what you’ll get if you have good credit and refinance this week at the rates measured by BankingMyWay.com we listed above.

That said, if you want a shorter-term mortgage loan, can handle a higher monthly payment, and don’t mind missing out on the higher mortgage tax deduction you usually get with a 30-year fixed mortgage, a 15-year refinancing deal is a good one.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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