How to Switch from 30 to 15 yr Mortgage w/ no Risk

[Fern]

A lot of people feel it's important to switch to a 15 year mortgage when they refinance, so they can eventually pay off that mortgage before they croak.

You can accomplish this easily without increasing the risk that you may possibly find it too difficult to keep up the larger payments and also retain the flexibility to change your mind and go back to the 30 year payments.

If you have a 30 year mortgage and want to go to a 15-year spread, there's no need to make it 'official' with all the paperwork at the bank. Just stat doubling your prepayments. That way, if you have an unexpected job layoff, medical or other large expenses, you can easily go back to the smaller monthly payments associated with the 30 year timeframe. So why lock yourself in?

Of course, this will only work if you are disciplined to make the larger payments in the absence of unusual financial hardship. And before beginning, make sure your mortgage permits prepayments without penalty. (I think most do.)

[Snoopy2645]

This is what I decided to do a few years back. I was trying to refinance & the banks wouldnt refinance me at all they kept offering me great rates but then would never go threw with it so I decided forget them I will do it on my own soon my mortgage will be paid for & we have lived here 6yrs & I had a 30yr loan hoping by sept my house is paid for in full.

[JoyJoy]

Excellent idea Fern! The keyword of not being "locked" into a higher payment is so important! We use Quicken Debt Planner and it suggests a monthly amount to pay off our mortgage in whatever time frame we desire and doesn't lock us into a particular amount per month either.

Isn't it great to have choices?

[sweeps]

One reason someone might switch to a 15-year mortgage is the lower interest rate. The current average on a 15-year is 5.25%, versus 5.67% for a 30-year.

[Fern]

Well done, snoopy!

And you're right, sweeps, the shorter term loans offer lower rates, there's always something i forget in the equation. Still, in certain situations, either way might be the better way to go depending on indivudal circumstances..

[Ima saver]

That is a great idea, Fern, I never quite thought of it that way. I took out a $50,000 mortgage to finish my house and I could not stand paying that interest, so I paid every single spare dollar I could get my hands on, on the mortgage. I got it paid off in less than 3 years.
I do sometimes borrow to buy land for spec houses. I have only had one early pay off pentalty and it was only for $150, but if it happens again, I am going to ask the bank to waive the pentalty. I am a good customer.

[34saving]

You don't even have to double your payments. Take a $250,000 30 year at 5.67%. The payment is $1446. Add an extra $620 every month and you'll be done in 15 years. Sweeps is right about the interest rates, but it costs money to refinance too.

[Snoopy2645]

Well I tried to refinance & no one would refinance me because I am an IC no reall employer so I cant get a loan unless I add someone elses name to it which no way am I doing. My interest rate is almost 8% on my home so I figure I will just pay it off & forget the bank!!!

[Ima saver]

I worked for a small savings and loan over 15 years ago. Our interest rates were 9% way back then.

[cercis]

Prepayment penalties are always negotiable and even illegal in some states. Never agree to one, not for a car or a house.

I worked for a mortgage company and their standard contract had a prepayment penalty. We got in big trouble for trying to collect one in a state that doesn't allow it. Do the research on your state and if it is illegal, TELL them and even report them to the attorney general. If it isn't illegal, just strike it out in the note and tell them you will not agree to it. They'll generally back down, they want your business.

[sweeps]

Originally Posted by cercis

If it isn't illegal, just strike it out in the note and tell them you will not agree to it. They'll generally back down, they want your business.

Good suggestion, cercis, I wouldn't have thought to do that.

[jmjj215]

When we purchase our first home this year we're going to do a 15-yr fixed. We want to get the lower rate that sweeps mentions, and we want to be sure we won't talk ourselves out of a faster payment. As far as the "risk" that goes along w/ locking ourselves into a higher payment, we have a six-month emergency fund to handle those.