I had a lot of resentment toward my first 15-year fixed rate mortgage. That's because the payment was high enough at $1,200 to force me to make sacrifices in my daily budget. I also had to sit and watch as my great 4.65 percent rate went even lower. However, I jumped on the opportunity to refinance a second time. I wasn't going to hold out any longer.
By the time we got our second 15-year mortgage, our balance on what we owed was lower. Also, we locked in at a lower interest rate of 2.75 percent when we refinanced. Our new mortgage payment is only $920 a month. According to a recent article by USA Today, almost one-fourth of new refinancing applications were for 15-year loans. Moreover the rate on the 15-year loan hit another new all-time low at 2.56 percent.
Getting me to 55
If we had refinanced to a 30-year mortgage, we probably would have still paid the minimum amount owed. We would have been paying on the loan until we were 70 years old. I know some seniors who didn't even take out their mortgage until they were in their 60s, but a mortgage won't be part of my retirement expenses. As long as we have paid off our house by the time I turn 55, I'm happy with our situation. By taking out a 15-year loan, it will be easy to meet my goal.
Beating the cost of rent
It used to be difficult to afford a 15-year mortgage. However, our mortgage is less than the cost of renting a similar home. In fact, the average rent in my area is $1,200 to $1,300 or $300 to $400 more than our mortgage payment. Even people buying a home as opposed to refinancing, can benefit from a 15-year mortgage. The lower mortgage rates make it possible to afford nicer homes.
Leaping on the opportunity
While experts say they won't be surprised if the mortgage rates go even lower, I don't think it's worth it to wait. My older son is waiting to buy a home so he can build up his credit score and work history as well as save up for a down payment. However, with rates as low as they are it seems worth it to leap on the opportunity with the down payment a loan officer will allow.
Protecting us from downturns
According to the USA Today article, a shorter term mortgage produces protection a rapid downturn in home prices such as what we experienced when the housing bubble burst. That's because the shorter-term loans build equity more quickly. Ultimately, that's the No. 1 reason I fell in love with my first 15-year mortgage. It helped us go from being underwater on our mortgage to having 20 percent equity by the time we refinanced to the lower rate.
Although it made financial sense for us to take out a 15-year mortgage, I'm not sure it makes as much sense for anyone who is 25 or younger. If my son buys his first home by age 21, he will still have it paid off by the time he is 51 with a 30-year mortgage. Since rates on a 30-year are also at record lows, it seems like a win either way for young people.
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More from this contributor:When Refinancing Sabotages Other Goals
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