Refinancing has been on the increase during the past few years since mortgage rates have been steadily going down. Some borrowers have refinanced several times while others have not yet made the move. According to the Mortgage Banker’s Association, the majority of mortgage application volume in 2011 was for refinance applications. There is still room and time for many existing homeowners to refinance while mortgage rates continue to be low. Sometimes, in order for borrowers to make the move, it takes looking at the difference between choosing 30 years and 15 years when refinancing.

The most popular of all mortgages for both purchasing and refinancing is the 30 year mortgage. Often, when borrowers are refinancing, they are only looking for a lower monthly mortgage payment which makes choosing a 30 year mortgage the most feasible option. The downside of this refinancing move is that after a borrower has already paid the mortgage for several years, this 30 year choice adds years back to the mortgage. Basically, the years of monthly paying are wiped out and the borrower is actually starting all over. With a 30 year mortgage term, the first few years of mortgage payments are mostly interest payments. On the other hand, refinancing to a 15 year mortgage term can usually lead to an increase in the monthly mortgage payment. Since mortgage rates are currently so low, the actual difference depends on how high the original mortgage rate was. With 0.7 to 1% origination fee, 30 year fixed mortgage rates are at 3.500% and 15 year fixed mortgage rates are at 2.875%. It is possible that the proposed 15 year monthly mortgage payment may be the same or only slightly higher than the current mortgage payment. For borrowers who can manage the monthly payment, a 15 year mortgage is completed in half the time and the interest savings is huge. Since the principal amount of the loan is paid down at a faster pace, less overall interest is actually paid on the loan. At today’s mortgage rates, there is an approximate $45,000 savings in interest payments per $100,000 with a 15 year mortgage when compared to 30 years.

Choosing between 30 years and 15 years when refinancing is a big decision, but one worth investigating. Borrowers should request Good Faith Estimates for both mortgage terms in order to accurately weigh the difference in the monthly mortgage payment. Although a 15 year mortgage can be a major long term savings, it is not for everyone. Putting any additional strain on a household budget may not be worth the risk and, therefore, has to be an individual decision.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard .07 to 1% point origination fee.