Around this same time period last year, mortgage rates were at all-time lows. Even the 30-year fixed -rate mortgage (FRM) was averaging 3.50%. With mortgage rates currently dwindling in the mid 4% range, many homeowners might be thinking about refinancing to a shorter-term mortgage. While some people see the rise in monthly payments as a drawback, mortgages with shorter terms do have some advantages.

Lower Interest Rate

According to Freddie Mac, the 30-year FRM has averaged 4.77% for the past 5 years. At the same time, the 15-year FRM averages only 4.18%. With the significant difference, borrowers have the ability to save 59 basis points on average.

Because mortgage rates differ day-by-day and from lender-to-lender, many people opt to refinance when interest rates fall. The difference in interest paid could end up saving them big time over the course of the loan.

Lessen the Amount of Interest Over the Course of the Loan

Another perk that comes with downgrading your mortgage term is the length of time you will pay on the interest. Even if the rates on the 30-year and 15-year loan were identical, 15-year loans automatically come with a short interest payment period. Opting for a 15-year mortgage would cut your total interest expense by over half. The backing for this comes from the fact that you are cutting the time period and the principle balance more quickly. Aside from refinancers, homebuyers may also find this trait attractive when trying to find an affordable mortgage.

 Faster Equity Machine

With the ability to pay down principal at a faster pace, borrowers can build equity faster as well. If you were a homebuyer who made the wise investment at the beginning, you’ll be able to have a lot of opportunities in the long run. If you are a young homeowner refinancing early on, you’ll be able to have a greater advantage in the real estate market later on.

Becoming More Disciplined When Budgeting

The higher payments that come with a shorter-termed loan don’t have to be a negative aspect. Although no one ever likes to pay more, you could rejoice and turn it into an opportunity to create a stricter monthly budget. Instead of having to take out a reverse mortgage when you are older, you might have a bigger chunk of savings thanks to the financial outcomes of a shorter mortgage term. If you can handle the pressure, you will most definitely save more in the end, build up the value of your home and make the real estate world a better place.

Taking Advantage of the Savings

This rule could apply to those who still have an older mortgage that isn’t that much in style these days. Those with a 20-year FRM or 40-year FRM originally chose these plans because of the potential savings that were promised. If things did not work out the way you were hoped in the beginning, why refinance into a 30-year FRM. You’ve already been paying into your home for years. Refinancing to a 15-year loan will definitely cut the costs down in the end.

Owning Your Home (Mortgage-Free) Faster

It is the American Dream to actually own your property. Many homeowners pay their mortgage for years and never actually own one single house in their lifetime. If you feel you can handle all of the pressures that come with a 15-year mortgage, go for it. The savings in the end will not only be well worth it, but you will have a chance to own your home faster.


This advice is for all types of borrowers ranging from homebuyers to refinancers. The benefits listed are very real, but depend on how motivated you are to go after them. Borrowers who can’t deal with the stress of higher payments and budgeting have every right to obtain any mortgage they want.

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