Should I refinance to a 15 year mortgage?

Low rates drive many homeowners to refinance their mortgages, but most will opt to refi their 30-year fixed-rate mortgage with a new 30-year loan.

Yet homeowners who refi into a 15-year loan pay off their mortgages sooner. 

Because lenders usually charge higher interest rates on longer-term loans, a 15-year refinance can save thousands of dollars in interest. And you’ll own your home in half the time.

But there are drawbacks to a 15-year refi, too, including closing costs and higher mortgage payments. 

Here’s how to tell when you should refinance to a 15-year mortgage loan.

In this article (Skip to…)

• 15-year mortgage refinance
• Advantages of a 15-year loan 
• 15-year refinance savings
• Who should use a 15-year refi
• Disadvantages of a 15-year loan
• Today’s mortgage refinance rates

However, closing costs can be negotiated, potentially making refinancing into a 15-year loan more appealing. 

The lower rate advantage

A 15-year loan typically carries a lower interest rate than a 30-year loan. For example, one lender might be quoting a 30-year fixed-rate mortgage at 4.375% and a 15-year fixed-rate loan at 3.625%.

That’s a difference, or “spread,” of 0.75% — a pretty substantial difference in mortgage interest.

Factor in the lower rate and the shorter loan term, and you would save around $150,000 in interest repayment on a $300,000 loan.

• Eliminating mortgage insurance. Private mortgage insurance (PMI) on a conventional loan can be eliminated when you have 20% in home equity. FHA mortgage insurance premiums continue for the life of the loan — but you can often refinance to remove them. Dumping $150 or more in mortgage insurance premiums each month can make a 15-year loan affordable
• Using your home equity for home improvements. A 15-year cash-out refinance can be used to make home improvements that may increase your home value as well as its livability. At the same time, the shorter loan term means you can build equity even faster
• Consolidating credit card debt. Paying off your credit card can be a good use of the funds from a cash-out refinance, particularly when coupled with a shorter loan term. Within 15 years, you could be completely debt-free
• Consolidating mortgage debt. Rising interest rates and the end of the initial interest-only phase of a home equity line of credit (HELOC) could mean a spike in your monthly payments. With enough home equity, you may be able to wrap your HELOC or home equity loan into one mortgage with a 15-year term. Interest rates on 15-year fixed loans are usually lower than home equity rates, and they won’t increase
• Preparing to retire. One of the most common reasons for a 15-year refinance is to manage your retirement timeline. Many homeowners want to own their home without a mortgage loan in their retirement. Other goals include selling their current home with sufficient equity to be able to pay cash for a retirement property
• Consistent monthly payments. A 15-year refi could make sense, depending on our loan type. Borrowers with an adjustable-rate mortgage (ARM) may refinance into a 15-year fixed-rate mortgage (FRM) to benefit from the stability of regular monthly mortgage payments

Play around with the numbers in our refi mortgage calculator to determine how much a 15-year refinance can save you.

Today’s 15-year and 30-year mortgage refinance rates continue to drop, according to Freddie Mac. So now could be an advantageous time to replace your 30-year loan with a new 15-year loan.

The spread between 30 and 15-year loans is always a consideration when you choose a refinance loan.

Bear in mind that the interest rate you qualify for will depend on a number of factors, including your credit score, debt-to-loan ratio, type of loan, and the current equity in your home. 

Also, the lender underwriting your loan affects your refi rate — so be sure to shop your refinance around with multiple mortgage providers.