Ask the expert: 30-year vs. 15-year refinancing at current mortgage rates?
December 07, 2010
Q: My husband and I have been paying our mortgage off for about ten years now, and we are finally getting around to looking at refinancing. I know we probably should have refinanced before this, but we aren't always as on top of these things as we should be. Anyway, with only 20 years left on our payments, we are reluctant to sign up for another 30-year mortgage. What would be the pros and cons of going with a 15-year mortgage instead?
A: The year 2000 was the last time 30-year mortgage rates averaged above 8 percent for the year. Anyone who woke up from a deep sleep ten years later would find current mortgage rates hard to believe. 30-year rates are down around 4.5 percent, and 15-year rates are down around 3.8 percent.
This means that current mortgage rates give a person refinancing a ten-year-old, 30-year mortgage some interesting options. You could refinance to a fresh 30-year mortgage, and find your monthly payments considerably lower. Not only would you be reducing the interest rate drastically, but you'd also be lowering the payments by spreading the remaining 20 years of debt back out over 30 years.
However, if you've had no trouble meeting your monthly mortgage payments, you might question why you'd want to pay interest for another 30 years. Current mortgage rates are low enough to make a 15-year mortgage an enticing refinancing option to anyone with a 2000-era mortgage. By effectively cutting your interest rate in half, you could both lower the monthly payments and the remaining length of your mortgage.
That's a rare deal that illustrates how low current mortgage rates are. Anyone awaking from a 10-year sleep today would be thrilled at current mortgage rates; however, anyone who continues to snooze on these rates will probably kick themselves when they wake up.
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