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15 year vs 30 year loan comparison


Q. I’m thinking of refinancing my Crofton home, but I’ve been paying on my 6.5% loan for 12 years and don’t really want to re-start that 30–year term. What do you recommend?

A.  If you haven’t refinanced your home since interest rates dropped below 4%, now is the time to get off the fence and do it. 

Va and FHA borrowers will find it very easy to refinance, since you can take advantage of a streamline process that doesn’t require an appraisal, credit report, income verification or any of the other dreaded processing steps.  You just have to be “on time” with payments for the past year.  Even Conventional borrowers will find the aggravation of processing a new loan to be well worth the trouble at today’s record-low rates.

With the decision to refinance made, the next issue is this:  15 year or 30 year? 

The payments on a 15 year loan will be a little higher than a new 30–year loan, but you’ll get a lower interest rate and build equity much faster. 

Let’s look at an example of a $200,000 mortgage with the choice of a 30 year term @ 3.75% compared to a 15 year term @ 2.875%. The payments would be $442.94 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments. 

15 vs 30 year loan comparison

If you’ve been paying down a 30–year loan @ 6% for the past 12 years, your payment will remain about the same, but you could drop 3 years off the remaining term.

On the other hand, refinancing to a new 30 year loan could reduce your mortgage payment cash flow at a time when federal, state, and local taxes are going up, and retirement is on the horizon for you. This is an option that may be right for some borrowers, especially if cash flow is your Number 1 concern.

Contact me if you’d like a recommendation for a trusted Crofton area mortgage lender who can help you examine your options and make the right decision for your situation.

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