Mortgage Types Advice & Articles
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15-year loan can mean big savings

December 01, 2009

If you’ve decided to refinance your mortgage, but don’t want to restart your 30-year payoff clock, a 15-year loan might be just the ticket. Interest rates on 15-year loans have fallen to record lows and a shorter loan term can be a big money-saver when it comes to total interest expense.

Interest rate drops on 15-year loans
The average interest rate on a 15-year fixed-rate loan was just 4.32 percent with an average 0.6 points in the week ended Nov. 19, according to Freddie Mac’s weekly survey of loan interest rates. A year ago, the average interest rate on a 15-year fixed-rate loan was 5.793 percent. While not all borrowers can qualify for the lowest interest rate, that 4.32 percent average should be a very attractive number for many homeowners who want to refinance.

A 15-year loan will have a higher monthly payment compared with a new 30-year loan because your loan payments will be are amortized over 15 years, instead of 30 years. But that higher paymente will would be offset by significant savings on the total amount of interest you’ll pay over the life term of the loan.

Interest expense savings are significant
Here’s an example that illustrates just how much interest expense can be saved with a 15-year loan compared with a 30-year loan:

   15-year loan  30-year loan
 Loan Amount  $250,000  $250,000
 Interest Rate  4.32%  4.83%
 Monthly              Payment  $1,889  $1,316
 Total Interest Expense  $90,121  $223,832

Notice that the loan amount is the same for either loan term, but the interest rate and total interest expense are significantly lower on the 15-year loan. The total interest saved over the entire term with the 15-year loan would be approximately $133,710, a considerable sum. And even if the loan were paid off sooner than 15 years, the savings would still be significant.

Crunch the numbers with a refinance calculator
The decision to get a 15-year loan shouldn’t be taken lightly since the monthly payment will be higher. You should feel confident that you’ll be able to make that higher payment every monthly before you decide to get a 15-year loan.

The LendingTree Refinance Calculator can help you figure out how much your monthly payment would be on a new 15-year loan and decide whether refinancing with a 15-year loan would be a good choice for your personal situation.

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