15-Year Refinance

Mortgages, for most people, are a super-confusing part of modern day life. Trying to understand mortgages is a lot like trying to understand the idea of a credit score right after you get out of high school. When you start glancing at those for-sale signs in neighborhoods all over your city, you’re getting ready to start a journey that’s full of uncertainty. However, with the right lending partner, you’ll be able to navigate the experience with finesse and grow comfortable with the lending options available to you.

What is a 15-Year Mortgage?

To put it simply, a 15-year mortgage is a loan for buying a home where you agree to pay off the loan over the course of 15 years rather than 30 years. Many buyers choose a 15-year mortgage because it can save a large sum of money and an even larger sum of time in the long run. These are usually fixed-rate loans, which means they’ll charge the same interest rate throughout the duration of the loan. These are mortgages that already meet the rules and guidelines set down by the Federal National Mortgage Association (FNMA), sometimes known as Fannie Mae. They are one of the largest investors of conventional loans. A 15-year fixed mortgage is a conventional mortgage that is often called a “vanilla wafer” mortgage loan, because they’re exceedingly simple.

Essentially, a 15-year mortgage offers a structured plan for financing a future house or property. You’ll receive the loan. You’ll agree to an interest rate. You’ll pay your down payment and you’ll be on your merry way to paying off your house over the course of that 15-year mortgage. And, there is some freedom within this structure. For example, a fixed rate mortgage could honestly be any length that a lending firm is willing to agree to. You could stretch your monthly payments into as long as a 50-year mortgage, or keep your payments high and your time investment low with a 10-year mortgage instead. Mostly, you’ll find that most mortgages offered will be a 15-year mortgage or a 30-year mortgage.

The Basics

Every fixed rate mortgage that you agree to for any length of time, whether is the 15, 30, or another year selection has two main components that make up how the loan works.

The principal is the amount you borrow to purchase the home. For example, if you’re trying to buy a home for $450,000, and you put down $95,000, the principal would be $335,000. The next component of the loan is the interest rate, which is the amount of money that you pay to compensate the lender for borrowing the money for the house and for taking the risk of lending the money to you. In other words, to borrow money from a lender, you’ll have to pay them for it. A 15-year mortgage is attractive to many folks because, while you do need to pay interest on your loan, you'll end up saving money because you'll pay the loan off twice as fast as a 30-year mortgage. In other words, if you are paying interest for a shorter amount of time, you'll be paying more money on the principal debt and less on interest over the life of the loan.

What is a 15-Year Mortgage?

To put it simply, a 15-year mortgage is a loan for buying a home where you agree to pay off the loan over the course of 15 years rather than 30 years. Many buyers choose a 15-year mortgage because it can save a large sum of money and an even larger sum of time in the long run. These are usually fixed-rate loans, which means they’ll charge the same interest rate throughout the duration of the loan. These are mortgages that already meet the rules and guidelines set down by the Federal National Mortgage Association (FNMA), sometimes known as Fannie Mae. A 15-year fixed mortgage is a conventional mortgage that is often called a “vanilla wafer” mortgage loan, because they’re exceedingly simple.

15 Year Mortgage Pros:

• Lower interest rates than most mortgage loans
• It's a Fixed Rate
• Lower long-term cost
• Builds home equity quickly
• Easier to pay off the loan in a shorter amount of time

15 Year Mortgage Cons:

• Higher monthly payments
• Less affordable
• Won’t be able to save as much
• Financial hardship is far more dangerous

15 Year Pros

• Lower interest rates than most mortgage loans: In general, a 15-year mortgage often comes with a lower interest rate than any other type of mortgage. There’s less risk for the lender in a 15-year mortgage, so they’re generally more willing to make it cheaper to borrow the principal you need. After all, the longer the mortgage term, the higher the risk that a loan won’t be repaid and will go into foreclosure which is almost always a way to lose money for the lender. This makes 15-year mortgages more affordable in one sense.
• It's a Fixed Rate: With a fixed mortgage of any kind, the interest rate you buy at is the interest rate you keep throughout the life of your loan. This means that the monthly payment you agree to pay for every month for the duration of your loan remains the same throughout the 15-year agreement. That includes the interest rate on the loan, the taxes, and the insurance as well. This means you’re protected from the risk of rising interest rates, which can make an affordable investment, suddenly much more expensive.
• Interest Rates Stay The Same: Because interest rates are lower and you’re paying the loan off over a shorter amount of time, 15-year mortgages tend to cost less than 30-year mortgages in the long run. While your monthly payment for the 15-year duration of the loan might be larger than it would be with a 30-year finance, you’ll pay less over the course of the loan. For example, if a 15-year mortgage is offered at an interest rate of 3.6% and a 30-year finance is offered at an interest rate of 4.3%, even though the interest is higher on the 30-year finance, the monthly payment will be less. That’s because the overall principal for the house will be spread over 360 months to calculate the total payment, rather than 180. If there are only 180 months to pay off $335,000, you’ll have half as much time to pay off the house as you would have with a 30-year mortgage. But, because the interest rate is so much lower, and because you’re only making interest payments on your loan 180 times rather than 360 times, you’re still paying less in the long term. This makes the house closer to the price point you see when you’re initially shopping for the house.
• Builds Home Equity Fast: Your “home equity” is defined as the difference between how much money you owe on the house and how much money you already have invested. If you have more equity, you own more of the house’s current value than you owe, and vice versa. The main way you can build equity is obviously to pay down the principal on the loan of the house. Because 15-year mortgages have lower interest rates in general, each monthly payment you put toward the house is earning you more equity than the 30-year counterpart. In other words, since there's less interest to pay off as a whole, there’s more money going towards the actual principal of the loan. A 30-year mortgage has a higher interest rate, so you’ll be paying more toward the loan than the actual principal of the house.
• Easier To Pay Off Faster: A 15-year mortgage allows you to pay off a house in literally half the time a 30-year finance does. That means 15 years of your life that won’t be spent in debt and trying to catch up on a mortgage payment.

15 Year Cons

• Higher Monthly Payments: Because you have less time to pay off the entire principal of the house, the monthly payments you’re committing to will be twice as high as a 30-year mortgage because you’ll be paying it off twice as fast. For most folks, that’s a good thing. But that can really alter what a monthly budget looks like for many households.
• Less Affordable: Because the monthly payments are higher, it’s harder to afford them. Most budgets don’t allow for so much capital to be taken out on such a regular basis. This makes 15-year mortgages a luxury for most folks who have the financial security to really afford higher payments and quicker payoff period.
• Less Goes Into Savings: If you’re concerned about retirement savings, 15-year mortgages won’t leave lots of leftover capital each month for you to go on things like vacations, or for you to be able to afford putting a lot of money away. This makes 30-year finances much more affordable and a better long term option for plenty of folks.
• Tighter Payment Margins: Because the monthly mortgage payments are so much higher, it’s often more dangerous to fall on financial hardships. If, for example, you rely heavily on both incomes in your household to pay for the higher monthly payments on a 15-year mortgage and one person loses their job, your chances of being able to pay off your monthly payments as planned go down.

15-Year Refinancing

If you already have a mortgage, not all is lost. You could still take advantage of the many pros that come from a 15-year mortgage through refinancing. This is especially true if you initially got stuck with an adjustable rate mortgage that you’re looking to make a little more secure. After all, the ultimate goal of a refinance is to make an existing mortgage more desirable.

Indeed, it’s not too late to make your own mortgage more desirable and easier to manage through a 15-year refinance. You’ll be able to enjoy all of the perks of the 15-year mortgage, but without having to invest in a new property and open up a brand new loan with no home equity.

Refinancing is an excellent option for:

• Folks with an adjustable rate mortgage
• High interest loans
• A mortgage that has more than 15-years left.
• Interest only loans

Take back your financial situation. Make your mortgage into what you want. Visit lendingstudios.com today to learn more about 15-year refinance now.