I Switched from a 40-Year to a 15-Year Mortgage Without Increasing My Payment

It was always a dream of mine to switch to a 15-year fixed-rate mortgage. This summer, I was able to achieve this goal for two reasons. First, I bought a house that was less expensive than the one I sold. Second, I took advantage of record-low interest rates.

I was then able to put 20 percent down on a new property, avoiding the need to pay mortgage insurance on my 15-year fixed-rate mortgage, with a rate of 2.7% APR. The upshot? I’m paying the same monthly payments for my new mortgage as I did for the old one, but now I’ll own my home in 15 years instead of 40.

I Sold My Home Above My Asking Price

Before putting my home on the market, I attended to all minor repairs, from painting the walls to pressure cleaning the driveway. As a result, the home looked at its best when it went on the market. It also helped that the real estate market revived in our neighborhood starting in April. The median sale price of homes rose from $520,000 to $535,000 then $550,000. By June, when I put my home on the market, I asked for $589,000, to account for the home improvements I had invested in the house. My home sold for $631,500, $42,500 over the asking price.

I Bought a Cheaper Home

I decided what home I could afford to buy now based on an online mortgage calculator. I wanted to put down 20% to ensure that I will not have to pay PMI, as such insurance typically costs around 1.5% of the loan amount in yearly premiums. I also wanted to be sure that I could afford to make the payments on a 15-year fixed mortgage. I also sought mortgage advice from professionals so that I will be guided accordingly on how to make the right decision. The good news was that I was able to do the right thing and I can deal with the amount of mortgage that I had to pay.

Based on the mortgage calculator, I set my price range at $400,000 to $420,000. I favored homes in the lower range, because this left me with funds for making any necessary upgrades (which are typically required in a new home). In the end, however, I found a home for $420,000 that already included all the updates I wanted.

I Locked at 2.75% APR

My credit union offered me a 3% fixed APR for 15 years. I decided to pay $6,000 to buy down the rate to 2.75%. This reduced my mortgage payment to $2,850 (including pre-paids). This was important to me since this meant that I would be paying the same mortgage amount I was used to paying before. Only before I was paying for a 40-year fixed mortgage and a 15-year fixed second mortgage, while now I would pay for a 15-year mortgage with no PMI.

How Much I Saved in Interest Payments

It’s interesting to note that with my old 4% APR 40-year fixed mortgage I would have paid $475,000 in total financing charges over the life of the loan. While with my new, 2.7% APR 15-year fixed loan I will pay a total financing charge of $81,938 over the life of the loan.