If you’re thinking about refinancing your mortgage, a 15-year fixed refinance can be a good option.
Depending on your current loan term and interest rate, refinancing to a 15-year fixed refinance can be a cost-effective way to pay off your mortgage faster and save money on interest costs.
Here’s what you need to know about how 15-year fixed refinances work and how to find the best rates.
Current 15-year refinance rates and trends
Mortgage refinance rates have been slowly falling since last November. As of early January, average 15-year fixed refinance rates are around 6.3%. Lower mortgage rates are good news for homeowners looking to refinance, but rates are still quite high compared to two years ago.
During the pandemic, many homeowners refinanced their mortgages to take advantage of the historically low rates, which were at around 3%. But when inflation surged in 2022 and the Federal Reserve began hiking interest rates in an effort to contain it, mortgage rates shot up.
As a result, refinancing has become a less attractive option as many homeowners don’t want to give up their existing mortgage rates in exchange for today’s higher rates. But inflation is now steadily cooling and the Fed is expected to begin cutting rates later this year. Those factors, combined with other economic indicators, should help mortgage rates trend downward. Most major housing authorities expect mortgage rates to move closer to 6% as the year progresses.
What is a 15-year fixed-rate refinance?
With a 15-year fixed refinance, you take out a new home loan that replaces your current mortgage. You’ll pay the loan off over 15 years at a fixed interest rate. If you’re replacing a 30-year mortgage with a 15-year one, you can secure a lower interest rate, but the trade-off is higher monthly payments.
Read more: Refinancing a Mortgage: How It Works
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 pay significantly less in interest over the life of your loan.
- 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.
- Long-term financial gain: 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.
- Build equity faster: If you’re reducing your loan term by securing a 15-year refinance, you’ll be able to build equity faster.
Cons of a 15-year fixed refinance
- Higher monthly payments: Compared to a 30-year refinance, the monthly payments on a 15-year fixed refinance will be significantly higher.
- 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 between 2% to 6% of your loan.
When does it make sense to refinance into a 15-year mortgage?
Most people refinance to save money. Refinancing a longer-term loan, like a 30-year mortgage, into a 15-year mortgage will shave thousands off of what you’ll pay in interest. If you can secure a lower interest rate than the one on your existing mortgage, you’ll be able to save even more.
The general rule of thumb is that a refinance is a good idea if you can get an interest rate at least 1% lower than the one you already have. This is unlikely given today’s high rates, but if you purchased a home recently and can take advantage of a lower rate now, that could be enough incentive to consider refinancing.
Of course, there are other reasons to refinance. For example, if you want to switch from an adjustable rate mortgage to fixed-rate mortgage, tap into your home’s equity with a cash-out refinance or take someone off your mortgage, a 15-year fixed refinance could be a good option.
The first consideration for a 15-year refinance is whether you can afford it. If you’re moving from a 30-year mortgage to a 15-year one, you’re going to have higher monthly payments.
For example, if you have a 15-year loan on a $500,000 mortgage at a 6.5% interest rate, you’ll have monthly payments of $4,355 and pay $285,996 in total interest over the life of your loan.
A 30-year loan on the same mortgage would have a slightly higher interest rate, for example, 7%. In this scenario, you will have monthly payments of $3,326 and pay $697,544 total in interest over 30 years.
Not only is that a massive difference in interest payments, but also more than a $1,000 difference in your monthly costs.
Consider your break-even point
Refinancing can potentially save you money, but it isn’t free. So, it’s important to consider your break-even point: the point when your savings outweigh the cost of refinancing.
Since you take out an entirely new home loan when you refinance, you’ll have to pay a new set of closing costs, which can range anywhere from 2% to 6% of your loan. If you’re thinking about moving 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 | 7.29% | 7.34% |
| 15-year fixed-rate | 6.74% | 6.82% |
| 30-year fixed-rate jumbo | 7.38% | 7.44% |
| 30-year fixed-rate FHA | 7.13% | 7.18% |
| 5/1 ARM | 6.68% | 7.92% |
| 5/1 ARM jumbo | 6.52% | 7.81% |
| 7/1 ARM | 6.78% | 8.00% |
| 10/1 ARM | 7.03% | 7.98% |
| 15-year fixed-rate jumbo | 6.97% | 7.05% |
| 20-year fixed-rate | 7.15% | 7.21% |
| 30-year fixed-rate VA | 7.28% | 7.32% |
| 7/1 ARM jumbo | 6.63% | 7.81% |
| 15-year fixed-rate refinance | 6.77% | 6.85% |
| 30-year fixed-rate refinance | 7.30% | 7.34% |
| 5/1 ARM refinance | 6.56% | 7.83% |
| 7/1 ARM refinance | 6.69% | 7.88% |
| 10/1 ARM refinance | 7.03% | 7.97% |
| 30-year fixed-rate jumbo refinance | 7.39% | 7.44% |
| 15-year fixed-rate jumbo refinance | 7.06% | 7.14% |
| 5/1 ARM jumbo refinance | 6.45% | 7.79% |
| 30-year fixed-rate FHA refinance | 7.19% | 7.24% |
| 20-year fixed-rate refinance | 7.16% | 7.22% |
| 30-year fixed-rate VA refinance | 7.77% | 7.80% |
| 7/1 ARM jumbo refinance | 6.63% | 7.81% |
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, but a big one is your income. It’s harder to qualify for a 15-year refinance than a longer-term loan because you need a higher income to afford the monthly payments. Lenders will also take into account other factors, such as your credit score and how much debt you’re carrying.
The type of mortgage that’s best for you depends on your individual financial circumstances. Generally speaking, though, if you can afford the monthly payments on a 15-year refinance, it has two main advantages compared to a 30-year refinance: You get a shorter loan term and lower interest rates, both of which could save you tens to hundreds of thousands of dollars in interest payments over time.
More refinance tools and resources
The bottom line is that refinancing into a 15-year loan 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.
