Why Now Is the Time To Switch Your Mortgage From 30 Years to 15 Years

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There’s been a lot of talk in the financial press over the last year or two about falling mortgage rates. Much of this discussion has centered around whether or not homeowners should refinance their 30-year mortgages into those with a lower rate — something 78% of homeowners failed to do, according to Zillow, between mid-2020 and mid-2021. Although that’s a valid concern, what’s not as often mentioned is whether or not you should refinance by swapping your 30-year mortgage into a 15-year one. If you’ve never thought of this before, now might be the time, for some of the following reasons.

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Lower Interest Rate

One of the main reasons for considering a swap from a 30-year mortgage into a 15-year one is to lower your interest rate. A 15-year mortgage will nearly always offer a lower rate, and in some cases, the difference can be dramatic. Even in 2021, when mortgage rates are near their all-time lows, the rate difference between a 30-year and a 15-year fixed-rate mortgage can be as much as 0.7% annually, or even more. That may not sound like much on the surface, but when the current 30-year interest rate is hovering around 3% or lower, a 0.7% annual rate drop amounts to a significant percentage. 

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Check Out: Here’s How Much Mortgage Rates Have Fluctuated Over the Past Decade

Lower Total Interest Cost

The one main drawback of switching to a 15-year mortgage is that your monthly mortgage is likely to go up, in many cases significantly. However, that higher payment comes with a huge benefit: a much lower total interest cost on your loan. 

Imagine you have a $200,000, 30-year mortgage at 3%. Your monthly payments will amount to $843, and the total cost of your loan will be $303,555. If you switch to a $200,000, 15-year mortgage at 2.3% instead, your monthly payments will rise to $1,315. However, the total cost of your loan will only be $236,670. That’s a whopping $66,885 in saved interest. That amounts to a savings of around 22% in interest costs.  

Shorter Payment Period

For most people, a home mortgage is the single biggest expense of their lives. With a 15-year mortgage instead of a 30-year mortgage, you’ll eliminate that burden twice as fast, making just 180 payments instead of 360. Once you’re free of your mortgage obligation, you can begin diverting that money toward savings, other investments, your retirement account or whatever you choose. Switching to a 15-year mortgage also all but ensures that you’ll be done paying your mortgage before you retire, giving you more flexibility to enjoy your golden years. 

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Rates May Never Be Lower

Throughout 2020 and 2021, mortgage interest rates made repeated all-time lows, breaking below 3% for 30-year fixed-rate loans. With the economy expanding and the Federal Reserve Board indicating that it was likely to begin raising interest rates in 2023, the party may soon be over in terms of snagging a low mortgage rate. This is especially true of 15-year mortgage rates, currently hovering around 2.3% as of September 2021 — or even lower if you’re willing to pay points, or upfront interest. If the economy heats up and rates go up, as many economists anticipate, this may be your last chance to ever get a mortgage rate as low as 2.3%. 

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Last updated: Sept. 7, 2021

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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