Should I refinance a 15-year mortgage
Quick insights
- Refinancing to a 15-year mortgage may change your interest rate, help you build home equity differently and potentially save money.
- With mortgage refinancing, there are usually closing costs and changes to your monthly payment to consider.
- Reviewing your budget, current savings and break-even point may help you decide if you should refinance.
Refinancing a mortgage is a financial move that homeowners may consider at different times, as their needs evolve. Maybe you want to lower your interest rate, pay off your home faster or respond to changing market conditions. Whatever your motivation, understanding the ins and outs of refinancing to a 15-year term can help you make the right decision for you.
Can you refinance to a 15-year mortgage?
Refinancing replaces your current mortgage with a new loan—often with a different term, interest rate or repayment period. Choosing a 15-year mortgage means agreeing to pay off your remaining balance over 15 years, rather than the original term.
Eligibility requirements:
- Credit score: Most lenders require a minimum score of 620 for conventional loans; higher scores may qualify you for better rates. Additional aspects of your financial profile, such as debt-to-income ratio (DTI), are also considered.
- Home equity: Generally, you need at least 20% equity in your home, though some lenders and loan types may accept less. The equity requirement may also vary depending on if you’re refinancing with your existing lender or a new one.
- Income and employment: Verifiable income is required, and stable employment is often preferred by lenders. They will review pay stubs, tax returns and employment history, among other things.
What does it mean to refinance to a 15-year mortgage?
Refinancing replaces your current mortgage loan with a new, 15-year loan. Regardless of your current loan’s remaining term, refinancing can change the interest rate, monthly payment and loan structure. In most cases, if you meet the lender requirements related to credit, income and home equity, you can refinance a 15-year mortgage.
The process is similar to applying for a mortgage when you buy a house. After you apply, there will likely be a home appraisal, income verification and closing costs due as you finalize the new loan. Refinancing does not automatically mean saving money. Think of it more like updating the terms of your mortgage before you continue paying it off.
Why refinance to a 15-year mortgage?
For many homeowners interested in refinancing, 15 years is a shorter term than the time left on their current mortgage. Thirty-year mortgages are common, and a 15-year mortgage can save money on interest, among other benefits. However, there are pros and cons to shortening your loan term.
Pros of shortening your term to a 15-year mortgage:
- Lower total interest: 15-year loans often have lower mortgage interest rates compared to longer-term mortgages. This potentially reduces total interest paid over time.
- Quicker equity accumulation: A larger portion of each monthly payment goes toward the principal, helping you build ownership in your home faster.
- Shorter loan timeline: Refinancing could help you pay off the mortgage sooner, possibly saving years compared with a longer-term loan. Paying off the mortgage sooner may create flexibility later, freeing up cash flow for other goals or giving a sense of financial security.
- Predictable financial planning: Fixed payments over a shorter period may make it easier to plan long-term budgets and other financial goals. Higher monthly payments may feel more manageable if your income has grown or stabilized.
Cons of shortening your loan term:
- Higher monthly payments: Shorter loan terms typically involve higher payments, which can affect how flexible your monthly budget is.
- Upfront refinancing costs: Closing costs could reduce or delay the financial benefit of refinancing.
- Less cash flow flexibility: Committing more income to housing may make it harder to handle unexpected expenses.
- Opportunity cost: Extra money spent on mortgage payments might otherwise go toward savings, investments or other goals.
Takeaway:
Refinancing to a 15-year mortgage may offer meaningful long-term savings and repay your mortgage in less time. However, the higher monthly payments and upfront costs are important to prepare for.
How you could think through the decision
Some homeowners refinance when rates drop meaningfully or when their income becomes more predictable. Others prioritize the stability of keeping their existing home loan. Whether 15 years is shorter or longer than your current loan term, your mortgage costs will change.
Here are some key questions to ask yourself:
- Are current 15-year mortgage rates much better than your existing rate?
- Can your budget comfortably handle the new monthly payment?
- How long will it take to break even on refinancing costs?
- Do you have the cash to cover upfront expenses?
- Are you close enough to paying off your current mortgage that the savings might be minimal?
Reviewing real numbers, running comparisons and talking with a mortgage lender can provide clarity without pressure to commit.
How to refinance to a 15-year mortgage
Here’s how the process generally works:
- Application: Submit a refinance application to your lender.
- Documentation: Provide income, asset and debt documentation.
- Appraisal: Lender may require a home appraisal to confirm current value.
- Loan approval & closing: Review and sign closing documents, pay closing costs and begin your new 15-year mortgage.
The process can include additional steps depending on specific lender requirements.
Before you apply, you can also assess your finances and estimate new payments. Use tools like the Chase mortgage calculator. Consider discussing your goals, plans and options with a Home Lending Advisor as you think about refinancing to a 15-year mortgage.
In summary
Refinancing to a 15-year mortgage may be worth considering if it aligns with your financial goals, budget and timeline. While it could potentially lower interest costs or help you pay off your home sooner, higher payments and upfront fees mean it may not be the right choice for everyone. Taking time to review your situation, explore different scenarios and compare numbers can help you decide whether refinancing to a 15-year mortgage makes sense for you.
