Refinancing your mortgage is a major financial decision, and the first step is identifying your goals. For many homeowners, the objective is to pay off their mortgage sooner. By refinancing from a 30-year loan to a 20, 15, or even 10-year term, you may qualify for a lower interest rate—leading to significant savings over time. But is this the right choice for you?
Frequently Asked Questions
When Does Refinancing Into a Short-Term Mortgage Make Sense?
The answer depends on your financial situation and monthly budget. Ask yourself:
- Are you financially comfortable covering all your monthly expenses?
- Have you recently paid off debt, received a raise, or started earning additional income?
- Do you have extra room in your budget to manage a higher mortgage payment?
Refinancing to a shorter-term loan reduces the total interest paid over time, but it does come with higher monthly payments. Even with the lower interest rates that typically accompany 15-year fixed mortgages, you should ensure you can comfortably afford the increase. It’s also important to weigh whether those funds would be better used toward other financial goals, such as retirement savings or investments.
If your financial situation has improved since purchasing your home, it may be worth exploring a short-term mortgage refinance.
How Much Can You Save by Refinancing to a Shorter Term?
Switching from a 30-year mortgage to a 15- or 10-year term generally results in higher monthly payments, but the long-term savings can be significant. Most of these savings come from reduced interest costs over the life of the loan.
For example, let’s compare a 30-year and a 15-year mortgage for a home purchase of $300,000 with 20% down and a 4.0% interest rate:
- 30-year loan: You would pay more than $172,000 in interest over the full term.
- 15-year loan: You would pay roughly $79,000 in interest over the 15-year repayment period.
That’s a savings of over $93,000 in interest payments!
Additionally, this example does not account for the fact that 15-year fixed-rate mortgages typically offer lower interest rates than their 30-year counterparts, meaning your savings could be even greater.
What Term Options Are Available for Refinancing?
If you’re considering refinancing to a shorter-term mortgage, remember that you have more options than just a 15-year term. Mutual of Omaha Mortgage offers mortgage programs with loan terms of 10, 15, 20, 25, and 30 years.
For example, if you’ve already lived in your home for five years and refinance to a 20-year mortgage, you would still save thousands in interest payments compared to staying in your original 30-year loan.
When reviewing your refinancing options, consider:
- The break-even point—how long it will take to recoup the costs of refinancing
- How long you’ve lived in your home
- How much principal you’ve already paid
- How many years you have left on your current mortgage
How Can Mutual of Omaha Mortgage Help?
If you’ve been asking yourself, “Should I refinance my mortgage?”, now is a great time to explore your options. With interest rates at or near historic lows, refinancing to a shorter-term mortgage could be a smart financial move.
If you’re ready to get started or want a no-obligation mortgage analysis, reach out to Mutual of Omaha Mortgage today. We’re here to help you refinance and shorten your loan term for long-term savings.
