Refinancing tops the list of many homeowners as mortgage rates crash to new all-time lows.
If you’re thinking of taking a fresh loan with a low, money-saving rate, your mind can automatically switch to a 30-year fixed-rate mortgage. It is the most popular type of home loan in America, and it is probably what you already have.
But if you have been in your home for a few years, refinancing into a 15-year mortgage may prevent you from taking out the loan and your interest costs. Although monthly payments may be stable, loans come with lower interest rates – currently as low as 1.875%.
Here are four tips on how to get very good deals when refinancing into a 15-year mortgage.
1. Compare Loans
Most mortgage lenders offer both 30- and 15-year terms. Compare the current average rates between the two loan products, then look at the zero and spread over a pair of lenders.
If 15-year mortgage rates do not seem to be significantly lower, it may not seem appropriate to accept the monthly payments that come with a short-term loan.
Nevertheless, long-run savings can be considerable, especially with rates at or near all-time. You can make very similar payments with your current 30-year mortgage.
According to mortgage company Freddie Mac, rates now average 2.88% for 30-year fixed-rate mortgages and 2.44% for 15-year loans. Suppose you are trying to decide whether to refine a mortgage balance of $ 200,000 for 15 or 30 years, at an average rate.
With a 15-year mortgage at 2.44% your monthly payment would be $ 1,327, yet with a 30-year loan at 2.88%, only $ 830. But you will pay a total interest of at least $ 39,000 during a 30-year mortgage, which is about $ 99,000 – $ 60,000 and more.
2. Shop around for a great rate
Fifteen-year mortgages have some pros and cons.
The primary disadvantage is the plumper payment, which can make it more difficult for you to meet other expenses and can become a major problem if you lose your job.
Benefits include: a lower interest rate; Low lifetime interest costs; And the ability to pay off debt and rapidly build equity in your home.
If you decide to proceed with refinancing into a 15-year mortgage, check the rates from several lenders in your area and review them on your behalf to find your best deal.
As you research online rates, you want to look at the websites of the major banks where you live. They often have the same pricing on their mortgage, but you can offer a cheaper rate or more favorable terms.
Small local banks and credit unions often have cheaper rates, but the approval process can be slow.
3. Make yourself your best as a borrower
A lender wants to feel that you will repay the loan and not in default – especially at a time when so many people are under a financial strain from the epidemic. A very good (740 to 799) or excellent (800 or higher) credit score will help provide that assurance.
If you do not know your credit score, you can get a glimpse of it for free.
If your score can improve, get copies of your credit report from the three major credit reporting bureaus (Equifax, TransUnion and Experian) and make sure they are accurate.
Bad information – such as debts that do not belong to you, or debts that are too old and have fallen – can lower your credit score.
Lower your score by not paying a loan (especially credit card balances), receiving bill payments on time, and not opening new credit accounts when shopping for a home loan.
4. Pay as much as you can upside down
If you do not have much equity in your home, making a large down payment on your refinance loan can help you reduce the mortgage rate for your referee by 15 years.
Like a decent credit score, a large down payment is one way to demonstrate to the lender that you are a good risk and deserve a lower rate. If you invest heavily in your home, it is less likely that you will walk away from your mortgage.
Also, making a down payment larger to give you at least 20% equity in your home will save you private mortgage insurance (PMI) premiums from the hassles on your home payment.