It sounds great, doesn’t it? Being able to pay off your mortgage in a fraction of the time by refinancing to a shorter-term loan. In just 15 years, you could own your home outright, build equity faster, and free up thousands of dollars you would otherwise be paying in interest over the course of a 30-year mortgage. The money you save on interest could go toward money for retirement, college, or even a wedding.
But can you afford it? Even though you might be able to afford the higher monthly payment, there are some other things to consider:
- Would you still have enough money left over to save each month? It’s recommended to keep at least six months’ worth of reserved funds in savings at all times. Would you be able to achieve this with a higher monthly mortgage payment?
- Will you go house poor? Think summer vacations, weekend getaways, dining out, shopping, improvements to your home, etc. All of these things you freely enjoy now might not come so easy if your mortgage payment is that much higher.
- Do you have enough job security and feel stable where you are for the next 15 years?
- In the event of an emergency, will you have funds in reserve to pay for unexpected expenses? Aside from the six-month reserve, will you have the extra money to cover unforeseen medical bills and car and house repairs?
The New York Times wrote an article on the topic with even more things to consider along with a link to a mortgage calculator. Even though rates for 15-year mortgages are great now, don’t rush into a decision until you weighed all your options.
