The vast majority of all homes sold today are sold to buyers financing the home through a 30 year fixed mortgage. This allows the buyer to put down a low-down payment, based on their qualifications and loan type, and then pay off the principal and interest over 30 years.
As this is an extended time period, the monthly payments on a 30 year fixed loan are often manageable for home buyers. However, the long-term payment also means a significant amount of the monthly payment and total overall payment will be in interest. Also, as the homeowner is paying a relatively small amount of the principal with each monthly payment, the home equity builds up slowly.
The Refinance Option
With a 30 year mortgage or a high-interest rate 15 year mortgage, a drop in interest rates can be a great time to refinance. By moving from the traditional 30 year loan to the 15 years, fixed rate mortgage refinance homeowners can dramatically cut the amount they will pay interest, allowing more of the payments to go to the principal.
This will allow for a faster buildup of home equity while also allowing the homeowner to become mortgage free much faster. Typically, with the 15 year, fixed rate mortgage refinance loan the interest rates will be lower than the 30 year fixed rate, which is also a benefit to consider. Not paying a loan for an additional period of time can allow for rapid savings and investments, which is always a perk to consider.
A big consideration for any homeowner looking into a 15 year fixed rate mortgage refinance is the increase in their projected monthly payments. If your financial situation has changed for the better, this increase in income can easily offset the higher monthly payment without making a significant change in your current budget and lifestyle.
For more information on the option of a 15 year fixed rate mortgage refinance for your home, talk to the experts at Guaranteed Rate. Information and handy mortgage calculators can also be found online at Guaranteed Rate.