Ask the Expert: Should You Refinance to a 15-Year Mortgage?

If your adjustable-rate mortgage (ARM) is up for renewal, switching to a 15-year fixed-rate mortgage could be a smart move—if your budget allows it.

Many homeowners who choose a 15-year loan have already been paying on their mortgage for several years and want to pay off their home sooner rather than extending payments for another 20 or 30 years. But before making the switch, the biggest question to ask is: Can you afford the higher monthly payments?

Interest Rates: 15-Year vs. 30-Year

One major advantage of a 15-year mortgage is the lower interest rate. Recently, the average rate for a 15-year loan was 6.3%, compared to 6.96%–7% for a 30-year mortgage, according to Bankrate.

Here’s an example of how monthly payments compare:

• A $100,000 mortgage at 6.25% over 30 years = $615.72/month
• A $100,000 mortgage at 6.25% over 15 years = $857.42/month

While the 15-year loan requires larger payments, you’ll build equity faster and pay far less in interest over time.

Other Factors to Consider

• Budget Impact: Make sure the higher payments won’t strain your finances. The last thing you want is to overextend your budget and create financial stress.
• Stability vs. Market Risk: If you currently have an ARM, switching to a fixed-rate mortgage offers stability and protection against rising interest rates.

Bottom Line

If you can comfortably afford the payments, a 15-year mortgage is a great way to save on interest and pay off your home faster. However, a 30-year loan provides lower monthly payments, which may be the better choice if cash flow is a concern.

Still unsure? Talking to a financial expert or mortgage lender can help determine the best option for your situation.