How to turn a 30 Year Fixed Mortgage into a 15 Year Fixed

Many buyers are torn between getting a lower monthly payment and longer-term length of a 30 year fixed, or getting a lower interest rate and pay less interest on a 15 year fixed. Depending on your financial situation, I usually recommend going with a 30 year fixed- the reason is that you can turn a 30 year fixed into a 15 year fixed without refinancing but once you get the 15 year fixed you are stuck with the higher payment.

All you have to do to turn your 30 years fixed mortgage into a 15 is make an additional payment each year- to determine the size of the extra contribution each year you will need a mortgage calculator- I like’s mortgage calculator:

Step 1:
First, we will need to know how much the Principal is remaining to pay off. If you haven’t started paying yet that’s easy- it’s whatever the loan is for. If you have made a few years of payments already- no problem, your monthly statement will have your principal balance on it- or you can calculate how much principal is remaining by putting your numbers into that handy Bankrate mortgage calculator above to figure out what your principal balance is. You will need to know your loan amount, interest rate, and how many payments you have made so far or the date of your first payment. Create an amortization table by clicking the [Show/Recalculate Amortization Table] blue button. Then find the payment number or date that you are currently at and on the column farthest to the left labeled “Balance” will show our remaining principal. Pretty easy so far!

Step 2:
Determine what the 30-year monthly payment is. In the example used here we assume 600K purchase price, with 20% down for a mortgage balance of 480,000 at 6% interest. The monthly payment is $2,877

Step 3:
Determine what the 15-year monthly payment is. For the same example, as used in step 2, the monthly payment for 15 years is $4,050

Step 4:

Minus the 30 year payment from the 15 year payment to determine the difference- in this case its $4,050 – $2,877 = $1,173. $1,173 is your magic number, if you add that amount to each payment you make each month you will have turned your 30 year into a 15 year.

Knowing how to do this calculation, you can now determine how to turn a 30 year fixed into any number of years by calculating the difference in payments.

On an aside note: The fact of the matter when it comes to investing is that- to invest well takes a lot of research and homework, and the very best on the planet routinely get 24% returns, the good get 7%, and everyone else swings around wildly, and in some cases loses their ENTIRE principal for a total loss. By paying down your mortgage more quickly you are getting a guaranteed return that you are unlikely to beat in the market on your own, or having someone invest for you (unless they are a top fund manager.) Paying down your mortgage may not be the sexiest investment, but it’s hard to beat a guaranteed 6%.

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