The Refinance Boom is not Over? Refinance Your 30-Year to a 15-Year!

January 28th, 2014

boom comic book image

Actually, the refinance boom is indeed over. However, there are a fair amount of people that still need to refinance. For example, I know of many people who have excellent interest rates on their 30-Year fixed rate mortgages, and plan to be in their home for a long time or possibly forever. These people should consider giving up their low 30-Year fixed rate. They can get a still quite low 15-Year fixed rate and save a small fortune over time.

Let me give you an example.

Let’s assume the following:

  • A homeowner owns a home with a $300,000 loan that was refinanced at the bottom of the market in late 2012 or early 2013. It has a 3.5% 30-Year fixed rate.
  • He currently owes $294,000. This principal and interest payment is $1,347 not including taxes and insurance.
  • Over 30 years his total payments are $484,970 and his total interest is $184,970.

What are the possibilities?

If this homeowner refinanced the current principal to a 15-Year fixed rate today at 3.625%, this principal and interest payment would be $2,119 not including taxes and insurance. Over 15 years his total payments are $381,573 and his total interest is $87,573.

Yes, the monthly payment would be higher on a 15-Year loan. However, as you can see by numbers above, the savings would be stunning. This consumer would save approximately $103,000 in total payments. And of that amount, about $97,000 represents interest. I think it’ll be worth it to shorten the term of the loan to save that money if you are going to live in the property for a longer time frame.

If the payment is too high you can always consider a 20-Year term instead of a 15-Year term. Regardless, if you are going to be in your house for a long time you should pick up the phone and call a mortgage lender to talk about refinancing to a shorter term. Even if you have a good interest rate on a current 30-Year loan it may make sense. And even though rates today are higher than they were a year ago the math above makes sense.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

Leave a Reply