Refinancing your mortgage into a 15-year fixed loan can lower your interest rate and help pay off your mortgage more quickly. Refinancing into a 15-year fixed-rate home loan may shorten your loan term, too, which will save you thousands in interest over the life of your mortgage.
Even though mortgage refinance rates rose sharply throughout 2022, depending on your current interest rate, refinancing can potentially offer homeowners a cost-effective way to shorten their loan term and save money in the process.
Here’s what you need to know about a 15-year fixed-rate refinance mortgage and how to find the best lenders and lowest rates available to you.
Is this a good time to refinance?
Average fifteen-year fixed refinance rates are at 6.19% as of April 12, 2023. Mortgage refinance rates have been consistently increasing since the beginning of last year in response to interest rate hikes implemented by the Federal Reserve, which is continuing to combat soaring inflation. The Fed has signaled it will continue raising rates this year, however, as long as it acts in line with market expectations, refinance rates may remain relatively flat.
“Mortgage rates have risen dramatically from what we saw start in 2020 and carry over into 2021,” said Dave Steinmetz, division president of origination services at ServiceLink, a mortgage transactional services provider. “Rising rates can be attributed to Federal Reserve action that has been motivated by a variety of factors -- most notably, the need to tamp inflation.”
If interest rates stay at these levels, it may not make financial sense for many homeowners to refinance at such high rates. However, the decision to refinance will always depend on your personal situation and your existing mortgage rate.
Pros of a 15-year fixed refinance
- Lower interest rate: 15-year refinance loans have lower interest rates than 30-year refinances. This means you will spend significantly less on interest over the lifetime of your mortgage, potentially saving tens of thousands of dollars.
- Pay off your mortgage faster: If you currently have a 30-year mortgage, you can reduce the amount of time it takes to pay off your home loan with a 15-year refinance. While your monthly payments will increase, a shorter loan term offers you more financial flexibility in the long run by freeing up your cash flow years earlier. It also won’t add years back onto your mortgage the same way refinancing with a 30-year loan would.
- Reduce the number of payments you make: If you refinance with a 15-year refinance instead of a 30-year refinance, you’ll cut the number of payments you need to make in half, from 360 to 180.
- Build equity faster: If you’re reducing your loan term by securing a 15-year refinance, you’ll be able to build home equity faster. And as home prices continue to appreciate, it gives you the option to complete a cash-out refinance and take money out of your house to pay down high-interest debt or make home improvements.
Cons of a 15-year fixed refinance
- Higher monthly payments: Compared to a 30-year refinance, the monthly payments on a 15-year fixed rate will be significantly higher. Make sure you can afford your monthly payments by utilizing a refinance calculator to understand how much you’ll be on the hook for each month. You want to make sure your mortgage payment won’t impact your quality of life or negatively affect your ability to save for retirement.
- High upfront costs: Additional expenses like closing costs and lender fees are also important to take into consideration when you refinance. Closing costs will run you anywhere from 2 to 5% of your loan. The average closing costs to refinance were almost $2,500 for a single-family home in the US in 2021.
- Smaller loan requirements: Lenders will usually approve you for smaller loan amounts with a 15-year refinance because they want to make sure you can comfortably make the monthly payments. If you need a larger loan, this could take a 15-year refinance off the table for you, in which case a 30-year refinance might make sense.
When does it make sense to refinance into a 15-year mortgage?
If you want to complete a 15-year refinance you need to be able to afford it – the monthly payments are bigger than a 30-year mortgage, which is the most common type of home loan in the US.
For example, if you have a 15-year loan on a $500,000 mortgage at a 4.7% interest rate, you will have monthly payments of $3,876.27 and pay $197,728.89 in interest over the life of the loan.
A 30-year loan on that same mortgage would have a slightly higher interest rate, for example 5.5%. In this scenario, you will have monthly payments of $2,838.95 and pay $522,020.20 in interest over 30 years. That’s a massive difference in interest payments.
You also want to make sure your break-even point makes sense when refinancing. Determining when you’ll break-even on your refinance varies depending on your current and new interest rate, closing costs and how long you expect to stay in the home. If you’re planning to move in the near future, it may not be financially beneficial to refinance your mortgage if you won’t be there long enough to recoup the closing costs. A refinance break-even calculator can help you decide if refinancing makes sense.
Current mortgage rates
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 6.94% | 6.96% |
| 30-year fixed-rate FHA | 6.15% | 7.07% |
| 30-year fixed-rate VA | 6.32% | 6.43% |
| 30-year fixed-rate jumbo | 6.99% | 7.01% |
| 20-year fixed-rate | 6.84% | 6.87% |
| 15-year fixed-rate | 6.27% | 6.30% |
| 15-year fixed-rate jumbo | 6.36% | 6.37% |
| 5/1 ARM | 5.77% | 7.45% |
| 5/1 ARM jumbo | 5.67% | 7.38% |
| 7/1 ARM | 6.47% | 7.35% |
| 7/1 ARM jumbo | 6.68% | 7.25% |
| 10/1 ARM | 6.73% | 7.28% |
| 30-year fixed-rate refinance | 7.07% | 7.09% |
| 30-year fixed-rate FHA refinance | 6.23% | 7.15% |
| 30-year fixed-rate VA refinance | 6.39% | 6.60% |
| 30-year fixed-rate jumbo refinance | 7.15% | 7.16% |
| 20-year fixed-rate refinance | 7.00% | 7.03% |
| 15-year fixed-rate refinance | 6.34% | 6.37% |
| 15-year fixed-rate jumbo refinance | 6.40% | 6.42% |
| 5/1 ARM refinance | 5.71% | 7.31% |
| 5/1 ARM jumbo refinance | 5.64% | 7.08% |
| 7/1 ARM refinance | 6.38% | 7.37% |
| 7/1 ARM jumbo refinance | 6.59% | 7.27% |
| 10/1 ARM refinance | 6.79% | 7.32% |
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
FAQs
A 15-year fixed refinance is a new home loan that replaces your current mortgage. The interest rate is fixed and you must pay the loan off within 15 years. If you are replacing a 30-year mortgage with a 15-year one, you can secure a lower interest rate, but the tradeoff is higher monthly payments. It’s important to do your research and speak with multiple lenders to find the best 15-year mortgage refinance rate available to you.
Lenders determine your eligibility for a 15-year refinance using a number of factors. It is harder to qualify for a 15-year refinance because you need a higher income to afford the monthly payments. Lenders want to make sure you can easily make the higher monthly payments and will take into account factors such as your income, credit score and how much debt you’re carrying. Shopping around and comparing rates offered by different lenders will help you secure the lowest rate possible.
The type of mortgage that’s best for you depends on your individual financial circumstances. But generally speaking, if you can afford the monthly payments on a 15-year refinance, it has two main advantages compared to a 30-year one: You get a shorter loan term and lower interest rates, both of which could save you tens to hundreds of thousands in interest payments over time.
More refinance tools and resources
The bottom line is that refinancing into a 15-year loan -- even as rates are rising -- can help you pay off your mortgage faster and supply valuable cash flow in the long run. Paying off your mortgage in 15 years provides more flexibility in your budget later on for building up your retirement nest egg, and it’ll allow you to retire without mortgage debt hanging over your head. When considering a refinance, always make sure to solicit and compare quotes from multiple lenders to find the lowest rates available to you, and ultimately get the most out of home ownership.
