A mortgage refinance allows borrowers to pay off an existing loan with a new loan. A 15-year mortgage refi gives homeowners the opportunity to pay off a 30-year mortgage with a shorter 15-year loan. Refinancing can open up financial opportunities for some borrowers, but you should take careful consideration of your financial standing before deciding to use a 15-year refi.

Here are some examples in which a 15-year refi makes sense if you want to:

  • Pay down a note as you get closer to retirement. Homeowners who are nearing retirement can use a 15-year loan to support their retirement planning. The new loan’s timeline is much shorter than the original, which provides you with more financial flexibility as you approach retirement.  
  • Refinance a 30-year mortgage with 20 years or less on it to reduce its timeline. If you switch to a 15-year loan, your payments will increase but your payment window will decrease.You’ll use higher payments to pay off the loan faster. This compressed repayment schedule means you’ll be debt-free, faster. 
  • Pay down the principal balance faster on a mortgage/home you won’t be in for much longer. As a homeowner, you might consider a 15-year refi if you only plan on staying in your current home for the next 2-5 years. By reducing the repayment window, you’ll increase your monthly payments. These higher monthly payments can help you pay down the principal faster on a mortgage/home that you plan on selling within the next few years.
  • Create home equity faster. The 15-year refi, with its high monthly payments and low interest rate, helps you build home equity faster. You’ll pay down the principal balance much faster with a 15-year loan instead of a 30-year loan. Home equity allows you to use a future home equity loan, cash-out refinance, or home equity line of credit down the line if you need a cash boost.
  • Claim lower rates. Refinancing is a great way to lower your interest rates. Short-term mortgages, including 15-year loans, usually have lower interest rates than 30-year loans. Lenders typically assume less risk in extending a 15-year loan as opposed to a 30-year loan, prompting a lower interest rate. The flipside of these low interest rates is that your monthly payments will be a bit higher. 
  • Adjust monthly payments to a higher income. If you have recently increased your income, you could put that extra money to good use with a 15-year refi. By reducing the loan repayment window, you will reach financial freedom a little faster. Plus, you can more easily afford the higher monthly payments associated with a 15-year loan using your new income. A stable financial foundation can open doors for you to reduce your loan timeline.