Published March 22, 2022
Choosing to refinance from 15-year to 30-year mortgage options is not easy. You may have refinanced into a shorter loan term several years ago, but financial situations can change quickly. While you felt comfortable with higher mortgage payments at the time, they are no longer tenable. If you're looking for a way to reduce monthly expenses, choosing a mortgage refinance that lengthens the loan term can put more money back into your budget.
When you refinanced to a 15-year mortgage, you likely did so to pay down debt and increase home equity. The faster repayment schedule helps reduce the amount of interest paid over the life of the loan, and the shorter term guarantees access to lower rates. This is an effective financial strategy, and we often encourage qualified borrowers to make the switch. But the past few years have seen significant economic turmoil, which means financial priorities have changed.
There is nothing wrong with choosing to refinance from 15-year to 30-year loan terms. Taking this step can help reduce monthly payments and provide some financial flexibility. Plus, you can always refinance back into a 15-year mortgage.
Of course, the process of completing a refinance from 15-year to 30-year is a little more involved than making the decision itself. So keep these factors in mind, and give us a call to discuss your personal situation. We'd be honored to help point you toward the best refinancing option for your needs.
Understanding the refinance process
At its core, refinancing is simply replacing an existing mortgage with a new loan. This means you should expect to encounter the same logistical experiences and costs that you had when first applying for a mortgage. This means that you should prepare to pay certain fees, like those associated with the closing and appraisal. However, we should note that there are options for a refinance without closing costs. Rather than paying at the time of your closing, those fees are rolled into the mortgage principal. This can be an excellent option for those experiencing loss of income or unstable savings. Also, be sure to take a look at a cash our refinance if you aren't already familiar.
Know what to expect
When you refinance from 15-year to 30-year mortgages, it will take you roughly twice as long to pay off the loan. Unfortunately, that doesn't mean your payments will be half the cost. The interest you are paying on the delayed payment of principal will lead to a larger overall payout toward your loan. Still, payments are likely to contract, often by several hundred dollars.
The thing to remember here is that you are using a long-term tool to work through a short-term issue. When the month ends, you can always put additional funds toward your principal if there's extra money. Just because you chose to refinance from 15-year to 30-year mortgages doesn't mean you can't still pay as if it's 15 years. Plus, once you regain your financial footing, there's always the option to refinance into a 15-year mortgage, especially if the 30-year mortgage improved your credit.
Fix the underlying problems
Choosing to refinance from 15-year to 30-year can be a great way to ease immediate financial pressure, but you need to identify the areas where the strain began. For example, did you have major unexpected costs, like medical bills? Did you experience lost income or perhaps a job change? Then, compare your situation from a couple of years ago to now and see what's different. Identifying those areas is essential, but correcting them is even more critical.
Think through whether this is a temporary fix
Once you've dealt with whatever led you to refinance from 15-year to 30-year terms, think through whether you want to prioritize refinancing back into a shorter term. Interest rates are more favorable on shorter mortgages, and the overall interest you pay will be significantly less.
A longer mortgage term will take some of the edge off your monthly payment, giving you some extra funds to address whatever else is impacting your bottom line, like big bills, other debts, or lost income. Choosing to refinance from 15-year to 30-year loan terms can make a significant impact on your monthly finances while helping to preserve your credit score. So take a break from your aggressive payoff plan and go with something less demanding while you work toward financial security in other aspects of your life.
