Should I Refinance to a 15-year Mortgage

With mortgage rates falling, many homeowners are rushing to refinance their 30-year mortgages into 15-year loans. Borrowers may be wondering if this is a financially sound move to make for their own mortgage.

We’ve researched it and worked out the numbers for you so you can make a responsible, informed choice.

When refinancing can be a good idea

The primary attraction of a shorter mortgage term is paying off your home loan sooner, typically at a lower interest rate. Refinancing to a shorter-term loan makes the most sense when interest rates are falling.

How much money can I save?

Let’s assume you have a fixed 30-year, $300,000 mortgage with an interest rate of 4.5 percent.

If you kept your existing mortgage unchanged for 30 years, you’d be making 360 payments of $1,520.06 a month, not including taxes, insurance and other fees. Over the life of your loan, you will have paid $247,220.13 in interest.

Now let’s explore what these payments would look like if you refinance to a 15-year fixed-rate loan at a 3.5 percent interest rate.

Over 15 years, you would make 180 payments of $2,144.65. Over the life of the loan, you’d be paying $86,036.57 in interest payments, affording you savings of $161,183.56.

Remember: These numbers may or may not translate to your own situation. These savings are calculated over 30 years, but you may be nearing the halfway point of your mortgage. Refinancing at a lower rate may still be a good idea, but your interest savings will be much less than described above. Second, your rate may not be a full point lower after a refinance, as it is in our example. This, too, will bring less savings.

What will a refinance cost?

Expect to pay a minimum of 2.5 percent of your new loan in closing costs and other fees. Before you get started on the refinance process, it’s best to tally up these expenses and see what it would cost you to refinance.

Also, your existing mortgage may have prepayment penalties. Find out about these fees before you set the refinance process in motion.

When refinancing is not a good idea

If you’re convinced that a 15-year refinance is right for you, first consider this crucial factor: Your monthly mortgage payments will increase significantly after a 15-year refinance.

If you’re financially responsible, you won’t consider this move unless you are confident you can afford this increased mortgage payment each month. However, you may not realize that tying up your spare cash in your home’s equity can be risky. It can make more financial sense to build an emergency fund, increase your retirement contributions and pay off high-interest debt before refinancing.

If you’re ready to make the move to a shorter-term loan, speak to a representative at High Point Federal Credit Union to learn about our fantastic home loan options.

Are you looking to refinance? Check out current mortgage rates at High Point Federal Credit Union!

All You Need to Know About Home Loans

If you’re in the market for a new home, you’ll likely need to take out a home loan or mortgage. Let’s take a closer look at home loans and the application process.

What is a home loan?

A home loan enables you to buy a home without having to pull all the cash directly from your pocket at the time of purchase. You’ll need to make a down payment, which is typically between 3.5-20% of the home’s value, along with closing costs and some other fees. The lender will finance the rest. You’ll then repay the loan, along with interest, generally over the course of 15 to 30 years.

Are all home loans alike?

There are several kinds of home loans, each with its own attributes. Here are three common types:

1. 30-year fixed-rate mortgage. The interest rate on this 30-year mortgage remains fixed despite any changes to the national rate.

2. 15-year fixed-rate mortgage. This fixed-rate mortgage will only last 15 years. Monthly payments will be higher, but the overall interest paid on the loan will be much lower.

3. Adjustable-rate mortgage (ARM). An ARM will give the borrower a lower interest rate in the early years of the loan, followed by a gradual rate increase over the rest of the life of the mortgage.

What do I need to know before applying?

To qualify for a mortgage, you’ll need to prove you are financially responsible and you can afford the monthly mortgage payments.

The primary way lenders gauge your financial responsibility is through your credit score. This number tells lenders how you’ve handled your past debts. Most lenders will grant a home loan to borrowers with a score of 650 or more. To boost yours, pay your bills on time and keep your credit card usage to a minimum. A higher score will help you get approved and will net you a lower interest rate on your loan.

Another factor in determining your eligibility is your debt-to-income ratio (DTI). Lenders want to know how big your collective outstanding debt will be in relation to your income if you receive the home loan. Most lenders allow a maximum DTI of 36%.

When should I apply?

It’s a good idea to start the mortgage process before you begin house hunting. Your lender will let you know whether you can expect to be approved for a loan and will provide you with an estimate of how much house you can afford. At this point, you can also ask for a pre-approval letter, which confirms you are qualified for a mortgage and shows sellers you’re a serious buyer.

How do I apply?

To apply for a home loan at Olean Area Federal Credit Union, contact a representative to help you get started. Make sure to have all of your financial documents in order.