Pay Off Mortgage Faster
While 30 year mortgages are great for people who want a low monthly payment, they are not conducive to paying off a mortgage efficiently and owning a home “free and clear”. This leads many homeowners, especially those who are looking at having little-to-no monthly liabilities in retirement to seek options for paying off their housing debt quicker.
There are two primary avenues one can take to pay their home loan off in less time. These include overpaying your mortgage each month, which means to pay extra money towards the principle. The other is to refinance and change the amortization from a 30 year loan to a 15 year loan.
How do you know what is best for you?
It is easy to determine how long it will take you to pay off your current mortgage if you were to overpay it by a certain amount of money each month. You can see in your current loan’s documents when your loan will be fully paid for. You can then easily calculate how long, let’s say $500 extra a month, would take to have paid off your mortgage balance.
You can then compare that scenario to what switching from a 30 year loan to a 15 year loan would look like.
One important consideration is what your current interest rate is. You may find that refinancing in general will save you money if you are able to lower your rate. Assuming that you are able to, it might make the most sense to refinance from a 30 year loan to a 15 year loan.
The difference in a monthly payment (principle and interest only) on a 30 year fixed mortgage, with a 200,000 loan amount, and with a 4% interest rate is $954.83. The same loan amount and interest rate on a 15 year fixed loan would $1,479.38.
Another benefit of paying off your mortgage sooner is if you are above an 80% LTV then you are required to pay mortgage insurance. If you pay off your mortgage sooner than you will be able to remove your PMI or FHA MIP.
There is certainly a lot of factors that will determine what is the best financial decision to make regarding paying your mortgage off sooner. We will closely look at your financial goals, your current loan, and what options exist for you. We can help make perfect sense of what is in your best interest, and if refinancing from a 30 year to 15 year mortgage is the appropriate choice.