The refinancing process is in many ways similar to the process involved in taking out a new loan. The only difference is when you refinance, you are trading one loan for another. While the lender sets your interest rate based on your credit score, they will allow you to choose your loan term. Loan term options typically include 10, 15, 20, 25, and 30 years. This is a huge decision to make, one that will impact your monthly payments as well as your loan cost.
When you choose a short term, you’re agreeing to pay back the full loan amount in a shorter period of time. The only way to do this is by paying a higher repayment amount every month. If you can afford the higher payments, a shorter loan term is always the preferred option. For one thing, your savings will be considerably higher with a shorter term since the interest has less time to accrue. Secondly, you’ll be able to clear your loan debt faster, which can be a huge relief.
The opposite happens with a longer-term. Your monthly repayments will be lower but you’ll pay more in interest over the longer loan term. Also, it will take you that much longer to clear your debt.
A 15-year refinance is neither the shortest nor the longest loan term available. Think of as it as a mid-length loan term. Take a look at the pros and cons of a 15-year term to decide whether this is the right option for you.
First, let’s cover the benefits of this term length.
A 15-year refinance will cost you less than a 25-year or a 30-year refinance. This is because less interest accrues over a shorter time period. Depending on your loan amount, you could save hundreds or even thousands of dollars in interest.
A 15-year refinance means you’ll pay off your loan and be debt-free in 15 years rather than 25 or 30 years. This frees you from the stress of keeping track of deadlines and payment. It also means extra cash that you can use for other things that you couldn’t afford before.
Of course, there are a few drawbacks to consider.
If your income drops or you encounter unexpected expenses, the higher payments could become unaffordable. This increases the risk of defaulting on your loan payments.
A 15-year refinance is right for you only if you have room in your budget to cover the additional monthly repayments. With this option, the monthly repayments won’t be as high as a 10-year refinance leaving you more wiggle room in your budget. On the other hand, your savings will be significantly higher than with a 30-year refinance.
Overall, a 15-year refinance gives you the best of both worlds in terms of affordable monthly payments and higher savings. It’s a great option if you can afford the higher monthly repayments.
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