July 21, 2014

WHY YOU SHOULD CONSIDER REFINANCING TO A 15-YEAR MORTGAGE.

Over the life of your loan, you’ll save 65 percent of your total interest costs. On a 30-year loan at current rates, you’ll pay almost $300,000 in interest costs on a $350,000 loan, versus about $100,000 on a 15-year loan. The benefit comes from two things: shortening the payment term, and lowering your interest costs. I don’t know about you, but I could find something to do with an extra $200,000.

Interest rates are going to have to go up sometime soonish. Mortgage rates are not at their all time lows (more’s the pity). But they’re still very low, and by refinancing now, you can lock in 3 percent or so. As inflation rises, this will ultimately mean that your mortgage loan is practically free. But this state of affairs cannot last forever; the Federal Reserve will eventually be pulling back on credit, and you will not be able to get such a good deal. Why not lock it in now?

Enjoy the benefit of forced savings. If you’re like me, and you get excited by the first of the month because it means you can make your extra mortgage payment and watch the loan balance go down, then maybe you don’t need this. But if you’d like to save, but somehow never get around to it, a 15-year mortgage basically pays you to exercise a little more self-discipline.

Stabilize your housing costs. Obviously, this is a long-term goal. But going into your 50s with the house paid off means that no matter what else happens, you can’t lose your house.

Well, they’ll take it if you don’t pay your taxes. So, really, you’re still kind of renting it from the state. . . .