Refinancing to a 15-year Fixed Home Mortgage


by Jonathan Haeber
jonathan.haeber@californiamortgagerate.com
California Mortgage Rate Columnist

We all make mistakes. Chances are, if you're here, you probably made the understandable mistake of securing the wrong loan at the wrong time. You may have secured your home mortgage in the early 90s, when rates were as high as 11 percent. Whatever the case, now is the time to refinance.

Of course there are costs associated with refinancing your mortgage. These costs may run as high as 3,000 dollars, but the benefits are far-reaching, especially if you think you can reduce the term of the mortgage to a 15-year fixed, rather than a 30-year fixed.

To Re or Not to Re Re-finance, That Is

Here's a scenario for you to mull over. Say you secured a 30-year fixed at 8% five years ago, but you want to refinance to a 15-year fixed home mortgage at 6% today.

If your original loan amount was 300,000 dollars, your monthly payment will be just about the same after refinancing - hovering around 2,100 dollars a month, yet you only have 15 years of payments remaining, rather than 25 years. You've just cut off 10 years of payments, simply by refinancing.

The Danger of Refinancing Home Mortgages

The danger of refinancing is that, by refinancing, you may end up paying some unexpected fees. One of these is the prepayment penalty. Some banks charge you a fee for paying off the principal of your loan earlier than scheduled. Be sure to check with your current lender before you refinance.

With interest rates now at their lowest point in four decades, it's almost always a sure bet that refinancing will save you some bucks, but just be sure not to extend the term of your loan. When possible, refinance to a shorter or equal term, beware of the hidden costs, and ask for a "Good Faith" estimate (required by law) on your new loan before you decide.

About the Author

Jonathan Haeber is a marketing writer for Discovery Channel Stores. He recently purchased his first home, and took a self-taught crash course in home mortgages. Needless to say, he's going to refinance for a 30-year fixed as soon as the banks trust him with their money.

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