For many middle-aged and older homeowners with several years of equity on their homes, 2021 could be a prime time to refinance from a 30-year fixed-rate mortgage into a 15-year mortgage.
The three primary reasons homeowners refinance to shorter-term loans are to save money on interest, to pay off the loan faster, and to build equity. But the possibility of reduced future earnings is another key reason some refinance into a 15-year loan. Why head into retirement with a mortgage?
It’s been well documented how spectacularly mortgage rates fell in 2020, and it’s not a stretch to think they might hover around 2% all year. In the final week of the year, the 15-year fixed-rate mortgage averaged 2.19%, a full point lower than the same period in 2019.
This also means that, similar to 2020, mortgage refinance rates should remain highly competitive – allowing homeowners to potentially save a ton of money on their mortgage payments.
But don’t wait too long to refinance to a 15-year mortgage if you’re planning on it, said Glenn Brunker, president of Ally Home.
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“This strategy is definitely something for borrowers to consider if they’re able to make the higher monthly payments and meet the qualifications for a shorter-term loan,” he said.
A 30-year loan on a $400,000 mortgage today has an average rate of 3.204%, while the rate for a 15-year loan for that same $400,000 loan is just 2.637% – saving the homeowner who switches up to $138,000 in interest, according to Brunker.
Similarly, refinancing a $300,000 mortgage at 3.6% over 30 years to a 15-year loan – in the same amount – at 3%, the homeowner could save $120,000 in interest.
The economic situations of consumers varied dramatically in 2020 and are likely to remain in flux for much of 2021, with many currently out of work, behind on rent and mortgage payments due to the effects of the COVID-19 pandemic and subsequent shutdowns. For some, buying a home right now at all isn’t feasible – but for others, especially those renting at high prices, buying a home has never made more sense.
Middle-aged homeowners are refinancing in droves, real estate agents and loan officers said. A popular refinancing age is 50, when many homeowners have dipped under 20 years remaining on a 30-year mortgage. And others are refinancing with an eye on selling their homes and downsizing.
“I reach out to old homebuyers all the time and ask them if they are interested in selling, and the ones that say yes usually get the idea to refinance to a 15-year mortgage and take advantage of the market,” said Laura Wilfong, associate broker and agent with Caldwell Banker Upchurch Realty. “But it’s also an individual question. Are you going to be staying in this home long term? Do you get transferred for your job every five years? In that case I would say to take advantage of the low rates and don’t do a 15-year.”
