I Saved 200K—Is a 15-Year Mortgage Right for You?

I didn't sell a kidney, any part of my self, or my soul. What I did took a bit of research and time, and a decent credit score. What did I do? I refinanced my family's biggest asset, our home, to a very conservative 15-year fixed rate mortgage. Was it worth it? Definitely! Do I recommend for everyone? Of course not!

But I figured that through this move, we would free up an extra 5-years of my husband's annual income for use in other things.Obviously, your circumstances may be quite different. Many people will disagree with our move.

Suze Orman says in her books that for a middle-income family, owning their home free and clear can have an emotional and psychological effect beyond the money savings. I agree.

I am not a mortgage agent, nor do I work in any part of the housing industry. I'm a stay-at-home mom, and was looking for a way help my family get ahead. I discovered that after being in our home for almost 5 years, we had accrued VERY LITTLE equity on our house.

Why? Because our 30-year loan was set up to pay most of the interest before we paid off principal (the part we get back, counted as equity.)

Out of curiosity, I began doing some comparison shopping online. Using interest rate calculators and loan-comparison wizards, I was able to determine that if we refinanced our home and paid a higher mortgage payment, we would be able to build equity much faster.

In a traditional 30-year loan, during the first 15 years you build little equity as you pay off the interest due. Meanwhile, from day 1 of a 15-year loan, your loan pays approximately half interest and half principal.

Here is a rate comparison for a $100,000 mortgage. In today's rate environment, most Americans would be thrilled to pay on "only" a $100,000 mortgage, and it seems like an easy round number to work with.

Typically, the point spread between a 30-year and a 15-year loan is about 1/2 of a percentage point. I chose to compare:

• A 30-year, 100K mortgage at 5.75%
• A 15-year, 100K mortgage at 5.25%

This is what the amortization table looks like:

I would be lying to you if I suggested that refinancing in today's housing environment was a good move for everyone, or even the average person. If you have credit card debt, student loan debt, or other personal circumstances that make this move an unwise choice, then don't do it! Maybe you stretched quite a bit to get into the house you bought and could only afford a 30-year payment. In an environment with skyrocketing fuel and food costs, you may do better to hold onto your money. Ask yourself these questions and think your decision through:

• How much will it cost me to refinance? (Ours cost almost $4,000).
• Do I have good credit and will my rate be lower now if I refinance?
• Can I afford to be locked into a higher payment?
• IF you have the self-discipline, you could make an extra payment instead of refinancing. There are online calculators that explain how to do that too...
• Do I have enough financial reserves to make the payment if I get behind?
• Does my family plan to stay in the house for about 5 years?
• Is my house still worth what I paid for it? (Many houses in metro areas are dropping in value so quickly that some lenders won't do a refi right now, even if you have good credit).
• Could I make more money using the extra payment in a different investment?