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Refinancing Your Mortgage from a 15-Year to a 30-Year Loan

Taking out a mortgage to buy your first luxury home can be exciting and stressful at the same time. Although chances are good that you did the best you could to make the right choice given your financial situation at the time, things often can and do change. Last week, we discussed the benefits of 15-year loans over 30-year mortgages. Here, you can learn more about some of the reasons why you might want to consider refinancing your mortgage to a 30-year term.

refinancing your mortgageGood Reasons to Refinance

A 30-year loan means that it will take you twice as long to pay off your home, and chances are good that you’ll pay thousands more – even hundreds of thousands more – in interest over the duration of your mortgage term. With that in mind, there are still a couple of really good reasons why you might consider refinancing your mortgage into a 30-year term.

  1. Your financial situation has changed. Sometimes, there’s very little you can do about major changes to your finances. Maybe you lost your job, or an investment fell through, or you’ve bumped into some other problem along the way. Refinancing to a 30-year loan can shave hundreds of dollars off of your monthly mortgage payment and make it easier for you to handle your finances until you’re back on the right track.
  2. You need more money to invest elsewhere. With wealth comes responsibility, and if you’ve found that diversifying your portfolio has been difficult due to the amount of money tied up in your mortgage payments, it could make sense to refinance into a longer-term mortgage. This frees up more money to invest elsewhere, and if your estimated profits are more than what you’ll spend on the additional interest, it’s well worth the consideration.

Keep in mind that you can still pay off a 30-year loan in 15 years. In fact, making just one extra mortgage payment per year can pay down the principle quickly enough to allow you to pay off your home in just about 15 years, even if you’ve opted to refinance into a 30-year mortgage. This can help take some of the stress out of refinancing your mortgage.

When You Should Avoid It

Just as there are times when you might want to consider refinancing to a longer term, there are some instances in which you should avoid it.

  1. You’re planning to sell your home. If you’re planning to sell your home either because you want to buy a new home or your financial situation has changed, it’s never a good idea to refinance beforehand – even if you really need the lower payments. Just find a real estate agent who can help you, ask the lender to prequalify you, and start looking for your new home. Your loan can then be contingent on your ability to sell your existing home.
  2. You can afford the payments. If you’re having no problem making your mortgage payments and you still have funds left to invest in other places, you should not refinance to a longer term. In this case, you’re simply throwing your money away in the form of interest you don’t really need to pay.

If you’re thinking about refinancing your mortgage from a 15-year term to a 30-year term, make sure you’ve thought about the potential repercussions. It’ll take you twice as long to pay off your home if you stick to the payment schedule, and it will cost you up to quadruple the amount of interest, but in some cases, it may still be worth it – especially if your financial security is at stake.

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