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.