Guest Author - Rose Mary
When mortgage interest rates are in a declining state, many people decide to refinance. Actually, that is the best time to refinance to a lower mortgage rate and, thereby, save on your monthly mortgage bill. With refinancing such a popular action, many people need to decide what term of mortgage is the best for them. Is it the 30 year term or the 15 year term?
Refinancing to the 30 year term mortgage will, no doubt, add years to your loan. Many people are against this, yet for many people this is the cheapest and most affordable option. A 30 year refinance is amortized over 30 years making the monthly payments cheaper for the term of the loan, but the overall interest paid over 30 years will be higher.. A 15 year refinanced mortgage will be amortized over 15 years, therefore, making the monthly payments higher and the overall paid interest lower.
For someone who is currently making mortgage payments on a 30 year fixed rate mortgage and is quite comfortable with the payments, refinancing to a lower fixed rate 15 year mortgage is probably a good idea. This borrower does not need extra cash every month and is more interested in getting the mortgage paid off quicker. For the person who is struggling with their current mortgage, refinancing to a cheaper 30 year fixed rate mortgage would probably help them with monthly cash flow.
When fixed mortgage rates are low and there is little difference between the 15 year and the 30 year rate, it is sometimes a good decision to take the 30 year refinance. Although the term is longer, the payments are lower and the extra cash can be put into savings or invested. On the other hand, extra money can be paid each month towards principal which will eventually reduce the term of the loan.
Which term mortgage to choose is an individual decision that a broker, loan officer and banker cannot make for a borrower. Each borrower needs to access their personal situation and apply for the type of loan that they feel comfortable with and the one they can live with over the years. Keep in mind, that it is a very important decision as your home is probably the biggest financial transaction you will ever make.