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Last updated on February 3rd, 2021 at 12:03 pm
Homebuyers and homeowners can enjoy lower monthly payments thanks to the current mortgage and refinance rates are at historic lows.
With lower rates, you can save thousands of dollars over the life of your loan on your mortgage.
A shorter loan term like a 15-year mortgage could save you even more in spite of the 30- and 20-year mortgages are popular.
If you’re considering refinancing into a shorter loan, know this that monthly payments will be higher.
However, switching from a 30-year mortgage loan to a 15-year one can actually lead to better interest rates.
To determine the difference between your current mortgage and potential new monthly payments use an online mortgage refinance calculator.
Your lender will replace your old home loan with a new one when you refinance your mortgage.
This new loan may come with additional fees. Most lenders require at least 20% equity in the property before approving a refinance.
The top reasons to switch to a 15-year mortgage immediately are:
- Record-low interest rates – In March, the Federal Reserve reduced interest rates to near 0% to encourage consumer spending. In September, the Fed suggested they would continue to keep the rates low through 2023. While all homeowners could save money by refinancing, opting for a 15-year mortgage over a 30-year mortgage could save even more money.
- Pending “adverse market” fee – The Federal Housing Finance Agency (FHFA) announced a new adverse market fee to “cover projected COVID-19 losses of at least $6 billion at the Enterprises,” to start on December 1, 2020. The fee applies to loans over $125,000. The fee will be 0.5% of the total loan. If you want to avoid the additional fee, you should begin your application soon, as it can take several weeks to process a refinance due to increase interest.
- Earn equity faster – With the 15-year fixed loan term, you will build equity in your home faster. This is beneficial if you anticipate that you won’t be in the house for the next 30 years and you’ll earn more profit from the sale.
Look at your financial stability and if you have the means to switch to a 15-year mortgage, then it could save you more money in the long run.
Reference Source: Fox Business
