Should you refinance into a 30-year or 15-year mortgage during coronavirus?

Should You Refinance Your Mortgage While Rates Are Low?

Should you refinance into a 30-year or 15-year mortgage during coronavirus?

The mortgage industry (and interest rates) have a somewhat complicated relationship with the rest of the overall economy. Generally speaking, when the economy is doing very well, the Federal Reserve will start raising interest rates. This can help to try and ward off inflation which is not great for the economy.

Conversely, when overall economic conditions are poor, the Federal Reserve will LOWER the interest rates, in an attempt to spur economic growth.

Since the interest rates on most mortgage products are (directly or indirectly) tied to the overall Federal Reserve interest rate, these actions have a pretty significant impact on mortgage interest rates.

Mortgage rates can fluctuate daily or even hourly, so it’s good to have a basic idea of what you want to do and what might make you want to refinance. With mortgage rates at historic lows, let’s take a look at what that means and whether you should refinance while rates are low.

Mortgage rates are at historic lows

The mortgage market is a fairly complicated market with several different types of mortgages available. So when you hear that mortgage rates are at “historic lows”, it’s important to understand what type of mortgage is being talked about.

Usually, the 30-year fixed mortgage is the loan product that is considered the “standard” mortgage. So if you hear about rates “dropping”, you’re usually hearing about the 30-year fixed.

It is true that usually (but not always!) rates for different types of products rise and fall together.

(SEE ALSO: What is a “Good” interest rate?)

It was not uncommon in the 1970s or 1980s to see mortgage rates with double-digit interest rates. Since that time, interest rates have generally steadily dropped, to a low around 3.5% in 2012. Mortgage rates fluctuated in the 3-4% range for the next several years before rising to around 4.5% in 2018 and 2019. 

The recent coronavirus pandemic has affected the housing market and sent rates on the 30-year fixed mortgage down under 3.5%, around the lowest those rates have ever been.

Should you refinance to a 30-year mortgage?

As the name implies, a 30-year fixed mortgage will lock in your interest rate for the duration of your loan. You’ll have 360 monthly payments, all of the same amount. The exact amount you pay will depend on the amount of your loan, the duration and the interest rate.

You can use our Loan Repayment calculator to find out the exact amount of your monthly payment. Keep in mind that that monthly payment amount will not include your property taxes or home insurance.

Your lender may require that you set up an escrow account, or else you’ll need to make sure to budget for those expenses on top of your monthly mortgage payment.

The 30-year fixed mortgage will usually give you your lowest monthly payment. In fact, even if you currently have a 30 year fixed mortgage, you will ly save on your monthly payment by refinancing now. That is because of 2 reasons – the rates are ly lower than when you first got your mortgage and because you’ve paid down your mortgage balance so the amount you’re refinancing is less. 

Should you refinance to a 15 or 20-year mortgage?

Another option to consider when refinancing is to refinance to a 15 or 20-year mortgage. A mortgage with a shorter term ( 15 or 20 years) will usually have a lower interest rate than the 30-year fixed mortgage. However, because the shorter term means there are fewer payments, your payment may still go up.

If you’re currently on a 30-year mortgage, you’ll ly (but not always) find that the monthly payments on a 15 or 20-year mortgage will be higher. The good news is that your mortgage will be paid off 10 or 15 years sooner! Overall you’ll pay quite a bit less in interest.

An example of refinancing to a shorter-term mortgage

To illustrate the types of choices you have with refinance, let’s look at an example. Our fictional homeowner bought her house 5 years ago with a mortgage of $250,000, and took out a 30 year fixed mortgage. Her monthly principal and interest payments have been $1,267 per month, and after 60 payments, her mortgage balance is now $228,305.36 with 25 years remaining.

She’s looking to refinance with today’s low rates. We’ll say that her closing costs will make her new loan payoff amount $230,000. Again using our Loan Repayment Calculator, here are some options she could consider:

  • A 30 year fixed loan at 3.5% – monthly payments would be $1,033. 
  • A 20 year fixed loan at 3% – monthly payments would be $1,276.
  • A 15 year fixed loan at 3% – monthly payments would be $1,588.

You can see that refinancing to another 30-year mortgage would drop her payments by $234 each month. That comes at a cost of adding 30 more years to the total time it takes to repay.

With a 20 year loan, her payments only go up $9 per month but she shaves 5 years and tens of thousands of dollars of interest over the course of the loan.

A 15-year loan would pay even less interest but at a cost of increasing the mortgage payment by $321 each month.

Of course, every situation is different but hopefully, this can serve as a guideline to help you as you make your own decisions about refinancing.

The case against refinancing

Even though mortgage rates are at historic lows, refinancing is not right for everyone. Here are a few cases where it might not make sense to refinance, even if today’s interest rates are lower than the rate on your current mortgage:

  • You’re not sure if you’ll be in your home long term. Refinancing does come with some upfront costs, and if you won’t be in your home long enough to pay them back, it might not make sense
  • Your credit score or financial situation has taken a recent hit
  • You want to take advantage of some of your home’s equity with a home equity line of credit.
  • You don’t have enough money to pay the upfront closing and other costs associated with a refinance. If this is the case, see if it might make sense to roll those costs into your new loan.

For even more information about the pros and cons of refinancing, check out our list of 8 refinancing tips

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Should I Refinance to a Shorter Term Mortgage?

Should you refinance into a 30-year or 15-year mortgage during coronavirus?

Tap to learn more about refinancing during COVID-19

Due to the coronavirus outbreak, refinancing may be a bit of a challenge. Lenders are dealing with high loan demand and staffing issues. If you can’t pay your current home loan, refer to our mortgage assistance resource. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.

You might think that refinancing your mortgage to a shorter-term loan is a win-win: You save on interest and pay off your home sooner. But there may be other ways to achieve those goals.

To figure out whether paying your home off sooner makes sense for you, ask yourself these questions:

Can I afford a higher mortgage payment?

For some homeowners, especially those who have young families or who are cash-strapped for other reasons, squeezing an extra few hundred dollars the monthly budget and limiting access to ready cash may be a risk.

Shorter-term loans offer lower interest rates but can come with substantially higher monthly payments.

Since failing to make payments will harm your credit and could put you in jeopardy of losing your home, you need to be sure that larger payments fit your budget.

Even if you feel confident about your ability to make bigger monthly payments, your debt-to-income ratio must be low enough to prove to a lender that you can afford it. For most loans, your DTI, including home-related expenses, should be no more than 36%, according to Fannie Mae, a government-sponsored enterprise that guarantees mortgages.

A higher DTI doesn't necessarily mean you'll be turned down for a loan, but it makes you unly to get a lender's lowest rate. Keep in mind that lenders include all your debt when calculating DTI. If you have substantial credit card debt or a sizable car payment, prepare yourself for a higher mortgage rate.

» MORE: Find current refinance rates

Will I be able to meet my other financial goals?

A mortgage refinance to a shorter-term loan may work if you have few long-term debts and enough money coming in each month to pay your bills (with extra cash to spare). But if your budget is tight or you’re not contributing to other savings, putting more money into your home may not be an optimal long-term strategy.

Rather than build home equity faster, it might make better financial sense to put that money to work in other ways, such as a 529 college fund, retirement accounts, life insurance policies or investments.

» MORE: Investing vs. paying off your mortgage

How much of my mortgage have I already paid off?

Depending on how far along you are on repaying your mortgage, moving to a shorter-term loan can increase your monthly payments, but it can also shrink them — along with total interest costs — if current rates are lower.

For example, cutting your loan term in half after paying it down for only a handful of years can significantly increase your monthly payment. But shaving a couple years off a loan that has been repaid over a long period of time will have less of an impact, and could even slightly decrease your monthly payment.

To get a better sense of where you stand, try using a mortgage amortization calculator. “Amortization” refers to the way the principal and interest is repaid.

Interest payments tend to be higher at the onset, while the amount of your monthly payment going towards principal increases as the loan is repaid.

An amortization calculator will allow you to see the principal and interest paid with each payment, and the remaining balance during any month of your loan.

» MORE: Mortgage refinance closings costs to watch out for

Am I planning to move within the next few years?

If you plan to stay in your current home for only a few more years, refinancing might not save you money. Figuring out your savings isn't just about the interest rate — you also need to consider the costs that go into refinancing your mortgage.

Dividing the total loan costs by your monthly payment savings will give you the number of months it will take to reach the break-even point. If you don't stay in the home long enough to reach the break-even, you won't see any savings before you move.

Can I pay off my loan faster another way?

Refinancing isn’t the only way to shorten your mortgage. With these strategies, you won't change your interest rate, but you also don't have to pay closing costs. Here are some ways to pay off your mortgage more quickly without refinancing to a shorter-term loan.

  • Take your current mortgage payment, divide it by 12 and add that amount to your monthly payment. (Check with your lender, and keep an eye on your monthly statements, to be sure the extra amount goes toward principal, not interest.) If you make those additional payments consistently, you could knock years off of a 30-year mortgage.
  • Another way to add an extra monthly payment is to go on a biweekly mortgage payment schedule. Paying every two weeks gives you the equivalent of a thirteenth payment. Though some lenders make biweekly payment schedules fairly painless, be wary of setup fees or of using a third-party servicer, which can diminish your savings.
  • Crunch the numbers on what the payments would be on a shorter-term loan, and simply make those exact payments each month without going through the motions of refinancing. If you’re short on cash some months, you can simply revert to your standard payment amount without the risk of penalties.


With rates so low, do you refinance to a 30- or 15-year mortgage?

Should you refinance into a 30-year or 15-year mortgage during coronavirus?

As part of the economic fallout from the coronavirus pandemic, the floor has dropped out from under mortgage rates. They keep falling to new all-time lows, and homeowners have been rushing to refinance.

© Artazum / Shutterstock Refinance into a 30- or 15-year mortgage?

Mortgage refi applications have been piling in at around double what lenders were seeing last year at this time.

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If you're a homeowner with a 30-year mortgage and think you could benefit from refinancing, it's natural to want to pull the trigger on another 30-year loan.

You'll shrink your monthly payment, possibly by hundreds of dollars, which is a great way to give your budget some breathing room amid a time of economic stress.

But in the process, you'll raise your overall costs — often substantially.

Personal finance personality Suze Orman says it's wiser to refi into a 15-year loan. “Do not refinance and extend your years,” she said recently, in an interview with People.

Yet other experts say choosing the shorter-term loan is not a smart idea — especially not during the current crisis.

See the arguments on both sides to help you decide whether a 30-year or 15-year refinance is the right choice for you.

The advantages of refinancing into another 30-year mortgage

© Provided by MoneyWise fizkes / Shutterstock

If you swap out an older 30-year fixed-rate mortgage for a brand-new one, you're ly to score a much lower mortgage rate and slash your monthly housing costs.

Thirty-year mortgage rates have plunged to an all-time-low average of 3.03%, according to mortgage company Freddie Mac. One year ago, the average was 3.75%, and two years ago it was 4.52%.

“The cost to borrow has never been cheaper for homeowners,” says Grant Moon, the founder and CEO of the real estate technology company Home Captain.

Fifteen-year fixed-rate mortgages come with even lower rates than 30-year loans: currently an average 2.51%, down from 3.22% a year ago and 3.99% at this time in 2018.

But Moon says you're better off choosing a 30-year mortgage for a refinance in the current environment, because 15-year loans come with much stiffer monthly payments.

“Your payment would ly go up, and with uncertainty around the economy with 30 million people [receiving unemployment benefits], it could be a dangerous proposition if a borrower were to lose their job and be stuck with a higher payment amount,” he says.

Use a mortgage calculator and you'll see that a $250,000, 30-year fixed-rate mortgage at 3.03% has a monthly payment of $1,058. The same size mortgage for 15 years at 2.51% has a steeper payment: $1,668 per month.

The advantages of refinancing into a 15-year mortgage

© Provided by MoneyWise Ink Drop / Shutterstock

For borrowers who can manage the higher payments, 15-year mortgage refinances have benefits, says Richard Pisnoy, a principal with Silver Fin Capital, a mortgage broker in Great Neck, New York.

“Not only will they be paying a lower interest rate on the loan, but they will reduce the number of years on the loan, thus saving an enormous amount of interest,” Pisnoy says.

With the 15-year mortgage in the earlier example — in the amount of $250,000 and at 2.51% interest — the interest costs would be about $50,300 over the life of the loan.

The 30-year mortgage in the same amount at 3.03% interest would have much higher lifetime interest costs: about $130,900.

Suze Orman says consider the interest burden for a hypothetical homeowner who has been paying on a 30-year fixed-rate mortgage for 14 years.

“Now you decide to refinance and you take out a fresh 30-year mortgage,” she writes, on her blog. “Sure, the new mortgage is at a lower interest rate, but you just extended your mortgage-payment on this home to 44 years! That’s 44 years of interest payments.”

Making your choice

© Provided by MoneyWise Antonio Guillem / Shutterstock

But Moon, of Home Captain, doubts there are many homeowners sitting on mortgages that are more than a decade old.

“The U.S. refinance boom started last May, and many of those who have been eligible to refinance — or it made sense for them to do that — have already refinanced,” he says.

Your decision on the term for your mortgage refinance loan ultimately comes down to how confident you feel about your current financial situation.

Fifteen-year mortgages have financial pluses, but they can be risky, Pisnoy says.

“The borrower needs to understand what the impact of a larger monthly payment will do to their cash flow and any financial impact this will have on them should they lose any monthly income they currently have,” he says.

If you refinance into a 15-year home loan and the payments become too much, you can't just start sending your loan servicer 30-year-size payments. That won't fly.

Going with another 30-year mortgage and its lower monthly payments can be the smarter move, particularly if you're not ly to stay in the house for the long haul. If you may be moving out within a few years, what does it matter if you have a 30- or a 15-year loan?

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Should you refinance into a 30-year or 15-year mortgage during coronavirus?

Should you refinance into a 30-year or 15-year mortgage during coronavirus?

The coronavirus pandemic has had a devastating impact on the U.S. economy, and 4.75 million homeowners have sought mortgage relief through forbearance programs, according to housing data provider Black Knight.

At the same time, the current economic environment has also caused mortgage interest rates to plunge to record lows. This trend may cause some homeowners to consider refinancing their mortgage, possibly with new loan terms.

What are the current mortgage rates?

Mortgage rates can vary daily fluctuations and your creditworthiness. However, according to Freddie Mac, the weekly average rate as of May 28 for fixed-rate loans was 3.15 percent for a 30-year mortgage and 2.62 percent for a 15-year mortgage.

If the interest rate on your current mortgage loan is higher than these averages, it may make sense to consider a mortgage refinance loan. You can visit Credible to compare rates and lenders in your area.


That said, it’s important to consider both the benefits and drawbacks of mortgage refinancing, especially during a pandemic and economic downturn.

The pros and cons of a mortgage refinance

While we’re seeing record interest rates on the low end of the spectrum, refinancing may not be right for everyone.

Here are some advantages to consider:

  • Potentially lower monthly payment: If you complete a mortgage refinance into a 30-year mortgage, it could help you reduce your monthly payment, even if you don’t get a lower interest rate. That’s because if you’ve been making payments on your loan for a few years, extending that term to 30 years again can result in lower payments.
  • Take advantage of a shorter term: 15-year mortgages come with lower interest rates because they present less of a risk to lenders than a 30-year mortgage. If you can afford a potentially higher monthly payment with a shorter term, it could help you eliminate your debt faster and save money on interest charges.
  • You may be able to access equity: If your emergency fund balance is low, a cash-out refinance could allow you to tap some of your equity to bolster your savings, which can come in handy during an unpredictable economic situation. This can especially be a good option if your home’s equity has increased dramatically since you first purchased the home.


Despite these benefits, there are also some pitfalls to keep in mind, whether you’re considering a mortgage refinance for 30 years or 15 years:

  • It may be tough to qualify: If your financial situation has changed because of the pandemic, it may be challenging to qualify for a home refinance. Even if your situation hasn’t changed yet, consider the odds of it happening in the near term. Getting laid off or furloughed in the next month or two could negatively impact your mortgage refi application.
  • Closing costs may neutralize your savings: Scoring a lower interest rate or longer repayment term can help you save on mortgage payments. But the loan’s closing costs, which can range from 2 to 5 percent of your loan amount, can wipe out those savings. To determine if refinancing is the right move, divide your total closing costs by your monthly savings. This will tell you how many months it’ll take to break even, and if you plan to stay in the home longer than that, a mortgage refinance may be the right choice for you.
  • You may see some delays: Low rates mean that many homeowners are seeking to refinance their home loans, and there have been reports that some lenders are overwhelmed, causing delays in the approval and closing process. If you’re hoping to complete the process quickly, it may be better to wait until lenders have a chance to get through their backlogs. 


Should you refinance your mortgage loan?

Mortgage refinancing can be a lengthy and expensive process, but if you’re in a solid financial position and can expect long-term savings from a new loan, it may be the right decision, even in the midst of a pandemic.

However, if the health of your finances in the short term is in question, you may find it difficult to get approved for a loan. Take time to understand the state of your financial well-being and how a mortgage refinance can help you.

If you’ve decided that refinancing your home loan is right for you, visit Credible to find personalized rates and lenders all in one place.


Should I Refinance to a 15-Year Mortgage?

Should you refinance into a 30-year or 15-year mortgage during coronavirus?

Mortgage rates are at all-time lows once again. According to recent data from Black Knight, nearly 14 million homeowners would benefit from a refinance. While many folks will opt for another 30-year mortgage, some will consider a 15-year mortgage.

Shortening your loan term can be one of the best financial decisions you ever make. But it’s not the right move for everyone, and you might end up overestimating your ability to repay the loan.

Here’s everything you should know before refinancing into a 15-year mortgage.

Benefits of a 15-year mortgage

Let’s say you no longer want to commit to a 30-year loan. Sure, you may think to occasionally pay extra on your principal. The alternative, though, is switching to a 15-year term and enjoying the following benefits.

Significant savings

Most homeowners don’t make a sizable dent in their loans for years. Just look at your latest mortgage statement. Chances are the majority of your funds are going to interest, especially if you’re in the early years of repayment. 

It’s a different story when we’re talking about a 15-year mortgage. The shorter term means that borrowers are responsible for a fraction of the interest. So you could be in line to save hundreds of thousands of dollars by refinancing into a 15-year mortgage. 

More equity, faster

Equity is king when it comes to homeownership. As a refresher, you can calculate this figure by subtracting your loan amount owed from the property’s value. For example, if your home is valued at $300,000 and you have $250,000 remaining on your mortgage, you would have $50,000 in equity.

But how does equity growth vary between a 30-year mortgage and a 15-year mortgage? It all ties back to the interest. The faster you can pay down the interest, the faster you chip away at the principal — and the more equity you accrue.

Lower interest rate

Wanting to obtain the lowest interest rate possible? You may be able to get a rate that’s half a point lower than those advertised with a 30-year loan. What seems a trivial disparity ultimately saves you even more money, depending on how long you stay in your home.

Quicker payoff

This is certainly the most obvious benefit of transitioning to a 15-year mortgage. Imagine what you could do when your house is paid off that much sooner! Once lofty goals of funding your child’s college tuition, upping your retirement contributions, or buying an investment property become easily attainable.

15-year mortgage vs. 30-year mortgage

There are a number of reasons why the average American homeowner prefers a 30-year mortgage. For one thing, it allows for greater financial flexibility. The lower payment gives borrowers the chance to build equity while also keeping up with other debt payments and stashing away cash for an emergency.

The ideal candidate for a 15-year mortgage typically checks two boxes: they have a stable job and no major debt obligations. Since this person can afford the higher monthly payment, it wouldn’t be smart for them to pay an additional 15 years’ worth of interest. However, would they be better off still going with a 30-year loan because of the associated tax deductions? 

How do the tax savings compare?

We have an entire article dedicated to mortgage interest tax deduction. To summarize, homeowners are eligible for a credit every year in which they make payments on their mortgage. Many borrowers wonder if they would receive more tax savings on a 30-year loan as opposed to a 15-year loan.

It’s important to know that there really isn’t much of a difference. Granted, it’s nice to receive a larger interest deduction at tax time. But wouldn’t you rather own your home outright than watch your funds go primarily toward interest?   

How much does it cost?

Unfortunately, refinancing your mortgage isn’t free. In fact, it’s common for borrowers to spend thousands of dollars over the course of this transaction. Do yourself a favor and ask your lender when your break-even point will be, as well as how much your refinance will cost.

Is it worth refinancing to a 15-year mortgage?

Just because your neighbor took out a mortgage with a shorter term doesn’t mean you should, too. Take an honest look at your financial situation and see if your family would benefit from such a move. If you’re even a little skeptical, hold off for the time being.

There are ways to get ahead of your mortgage principal without putting yourself at risk of foreclosure. You can start by rounding up your payments to the next $100 amount, as recommended by Nationwide. Better yet, make one extra payment a year and reduce the term of your loan by several years. 

Should I refinance now?

Lenders are still trying to determine how mortgage rates will fare in a COVID-19 environment. Though it’s expected that rates will favor borrowers for the foreseeable future, we don’t know for certain. That’s why we suggest locking in an ultra-low rate as soon as you have the opportunity to do so.

Check out our mortgage calculator to see how much you could save with a refinance.


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