Last updated: January 09, 2025

Mortgage Products

Should you refinance to a 15-year mortgage?

Husband and wife sitting in the living room, discussing the possibility of refinancing to a 15-year mortgage.

Key takeaways

Refinancing from a 30-year to a 15-year mortgage could help you pay off your loan faster, build equity quicker, and lower your interest rate.
Despite these potential benefits, a 15-year mortgage often comes with upfront costs and a higher monthly repayment.

Refinancing to a 15-year mortgage may help you pay off your loan faster, build equity more quickly, and save on overall interest costs compared to mortgages with longer terms. However, this option isn’t ideal for everyone. Shorter loan terms generally come with higher monthly payments, which could place additional strain on your household budget.

Assessing whether a 15-year refinance aligns with your financial goals and understanding how it compares to other mortgage options can help you make the best decision for your financial future.

Pros and cons of refinancing to a 15-year mortgage

Refinancing to a mortgage with a 15-year term can be a huge financial decision, so you'll want to weigh the benefits and risks.

Pros

Build equity faster: A larger portion of your monthly payments goes toward principal rather than interest, enabling you to build home equity more quickly.
Potential long-term savings: Although monthly payments are higher, the reduced interest paid over time often translates to substantial savings compared to a 30-year mortgage.
Increased financial security: Owning your home sooner can free up money for other financial goals, such as retirement savings or investments, and reduce financial obligations later in life.
Motivation to stay on budget: The higher monthly payment might encourage disciplined budgeting and financial management.
Reduced risk of market changes: If you currently have an adjustable-rate mortgage (ARM), refinancing provides an opportunity to transition to a fixed-rate mortgage that offers stability and protection against sudden interest rate increases.

Cons

Higher monthly payments: The shorter repayment term can mean significantly higher monthly payments compared to mortgages with longer terms.
Reduced financial flexibility: Allocating more of your monthly income to your mortgage may limit your ability to save for other goals, such as retirement, college tuition, or unexpected expenses. It can also reduce your capacity to handle emergencies or invest in opportunities.
Closing costs: Refinancing may involve closing costs, which can range from 2% to 5% of the loan amount. These fees can impact the financial benefits of switching to a shorter loan term, especially if you don’t plan to stay in the home long enough to recoup the costs.
Qualifying challenges: A higher monthly payment typically requires a stronger debt-to-income (DTI) ratio and better credit score to qualify. Borrowers with lower incomes or less-than-perfect credit may find it challenging to meet lender requirements for a 15-year mortgage refinance.
Not ideal for those close to paying off a 30-year mortgage: If you’re already well into your current 30-year mortgage, refinancing to a 15-year loan might not yield enough interest savings to justify the higher payments and closing costs. In this case, continuing with your current loan or making extra payments may be more cost-effective.

How much would a 15-year refinance save you?

In some circumstances, refinancing to a 15-year mortgage can save you money in interest costs. Here's an example:

Let’s say you have 25 years remaining on a 30-year mortgage for $500,000, and your current interest rate is 7% Annual Percentage Rate (APR). Here’s what the numbers could look like:

	30-Year Mortgage	15-Year Mortgage
Remaining Loan Amount	$470,658 (after 5 years)	$470,658
Interest Rate	7% APR	6.8% APR
Remaining Loan Term	25 years (300 months) (after 5 years)	15 years (180 months)
Monthly Payment	$3,326	$4,178
Total Interest Paid Over Remaining/Full Loan Term	$527,296	$281,374

So, with your current loan terms, your interest cost over the remaining 25 years would be about $527,296 based on paying around $3,326 per month for the remaining 300 months.

If you refinance to a 15-year mortgage with a 6.8% APR interest rate, your total interest cost over the new term would be approximately $281,374—resulting in a potential interest savings of $245,922.

Keep in mind that the actual savings depend on factors like your current loan balance, the time left in your mortgage term, and the interest rate you qualify for. Refinancing costs and fees should also be factored into the total savings calculation.

Is a 15-year refinance right for you?

Refinancing to a 15-year mortgage can offer several benefits, but it may not be right for everyone. Here’s some factors to consider when deciding if refinancing will make sense or not.

A 15-year refinance might be right for you if:

You want to pay off your mortgage faster: A 15-year mortgage can help you own your home outright in half the time of a 30-year mortgage. This shorter repayment period can mean greater financial freedom sooner, but keep in mind that if you’re already well into your current mortgage, the savings may not outweigh the costs of refinancing.
Your credit score has improved: If your credit score has increased since taking out your original mortgage, you may qualify for a lower rate. Lenders often reserve their best rates for borrowers with high credit scores, so it’s worth checking your score before applying for a refinance.
You want to save on overall loan costs: A 15-year mortgage can potentially save you tens of thousands of dollars in interest compared to a 30-year loan, as long as you refinance at a favorable rate and early enough in your current loan term.
You need a more predictable loan structure: Refinancing to a 15-year fixed-rate mortgage can provide stability, especially if you currently have an adjustable-rate mortgage (ARM) nearing its adjustment period. This switch locks in a consistent monthly payment and eliminates the risk of rising interest rates.

When a 15-year refinance might not be right for you

Higher monthly payments could strain your budget: The shorter repayment term may come with higher monthly payments. If these payments put too much pressure on your finances, it might not be a wise move. Evaluate whether you can comfortably manage the increased payments while maintaining your other financial commitments.
You’re far along in your current mortgage: Refinancing in the later stages of your current loan term might reset the clock on interest payments. As you enter the later stages of your mortgage, you’re likely paying more toward the principal than interest, so refinancing may not provide significant savings.
You have plans to sell your home soon: If you intend to move or sell your home in the near future, the costs of refinancing might not be worth it. Consider the break-even point—the time it takes to recover refinancing costs—to determine if it’s financially beneficial.
Market conditions are unfavorable: If current interest rates are significantly higher than those on your existing loan, refinancing to a 15-year mortgage might increase your overall loan costs rather than reduce them.

How to refinance to a 15-year mortgage

Applying for a 15-year mortgage refinance might involve the following steps:

Evaluate your financial situation

Before refinancing to a 15-year mortgage, assess your budget to determine if you can handle the typically higher monthly payment of a shorter-term mortgage. Consider whether the shorter loan term aligns with your plans, such as paying off your home sooner or saving on interest. Additionally, check your credit score, as a higher score often qualifies you for better interest rates and terms, making refinancing more beneficial.

Review your current mortgage

Look at the details of your current mortgage, including your remaining loan balance, interest rate, and the time left on your loan term. It’s important to identify any prepayment penalties your current mortgage lender may charge for paying off the loan early. Knowing these details will help you calculate the potential savings and decide if refinancing to a 15-year mortgage is the right financial decision.

Compare lenders and rates

To find the best refinancing deal, shop around with different lenders. Many financial institutions offer competitive rates for 15-year mortgages, so use online comparison tools or work with a mortgage broker to explore your options. Pay attention to not only the interest rate but also the terms and any additional fees associated with the refinance.

Calculate potential savings

Compare the total cost of your current mortgage with the projected cost of the new loan, including closing costs and fees by using the Discover® Home Loans Mortgage Refinance Calculator. This step is key to helping you understand if the long-term interest savings outweigh the upfront expenses of refinancing.

Gather documentation

Prepare the necessary documents for your refinance application to streamline the process. Typically, you’ll need proof of income (such as pay stubs, W-2 forms, or tax returns), recent bank statements, a list of debts and assets, and your current mortgage statement. Having these documents on hand will help expedite the approval process.

Submit your application

Once you’ve selected a lender, submit your application and provide all the required documentation. The lender will evaluate your financial profile, including your credit score, debt-to-income ratio, and property value, to determine your eligibility for the 15-year refinance.

Lock in your interest rate

After your application is approved, work with your lender to lock in your interest rate. Locking in the rate ensures you’re protected from market fluctuations, which can be particularly helpful if rates are on a rising trend. Discuss the duration of the rate lock to ensure it covers the time needed to complete the refinancing process.

Complete the appraisal and underwriting

Your lender will likely require a home appraisal to confirm the property’s market value. This step is key to determining the loan-to-value ratio and finalizing the loan terms. Once the appraisal is complete, your application should move to underwriting, where the lender verifies your financial details and ensures the loan meets their criteria.

Review and sign closing documents

At the closing meeting, review all loan documents carefully to confirm the terms, interest rate, and closing costs match your expectations. This is your opportunity to ask any questions or address discrepancies. Once satisfied, sign the necessary documents and pay any closing fees, such as the loan origination fee or title transfer costs.

Transition to the new mortgage

After closing, your new lender will pay off your existing mortgage, and you’ll begin making payments on the 15-year loan. Ensure you understand the payment schedule and set up automatic payments if possible to avoid late fees.

Refinancing to a 15-year mortgage FAQs

Should I refinance to a 15-year mortgage?

A 15-year mortgage can be a smart choice if you're looking to potentially build equity faster, reduce overall loan costs, and pay off your home sooner than with a 30-year mortgage. However, this approach is generally more beneficial if you're in the earlier stages of your current mortgage. Refinancing late in your mortgage term may offer limited savings due to the reduced interest owed. Keep in mind that switching to a 15-year term typically comes with higher monthly payments, which could leave you with less disposable income each month.

What credit score do I need when refinancing from a 30-year to a 15-year mortgage?

The credit score needed to refinance varies by lender, but generally, as with any other credit product, a higher score improves your chances of qualifying for more favorable terms and interest rates. If your score is on the lower side, you may still qualify, but you might face higher interest rates or stricter loan terms. It's a good idea to check with individual lenders to understand their specific credit requirements.

Can I refinance to a 10-year mortgage?

Refinancing to a 10-year mortgage is possible for some homeowners looking to pay off their loan faster than with a 15-year mortgage. It’s important to note that just like a 15-year mortgage, a 10-year mortgage is likely to have significantly higher monthly payments, which can put more pressure on your budget. Assess your financial situation to ensure you can comfortably handle the increased payments before committing to a 10-year mortgage refinance.

Where to go next

Eliminate your credit card debt to qualify for the best refinance rates on a 15-year mortgage — How to pay off credit card debt.
Work out how much money you could save when refinancing — Mortgage refinance calculator.
Refinance your current mortgage with a loan term that suits you. Discover Home Loans offers loan lengths of 10, 15, 20, and 30 years. For example, if you borrowed $60,000 for a 20 year term at 8.86% APR, your fixed monthly payments would be $534.45.

Please note: Discover Home Loans offers mortgage refinance products but does not offer Adjustable Rate Mortgage (ARM).

The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.