Does it make sense to refinance a 30 year mortgage to 15 years?
You don't say what the time remaining on the current mortgage is, nor the expense of the refi.  There are a number of traps when doing the math. Say you have 10 years left on a 6% mortgage, $200K balance. I offer you a 4% 30 year. No cost at all. A good-intentioned person would do some math as follows: Please look at this carefully. 6% vs 4%. But you're out of pocket far more on the 4% loan. ?? Which is better? The problem is that the comparison isn't apples to apples. What did I do? I took the remaining term and new rate. You see, so long as there are no prepayment penalties, this is the math to calculate the savings. Here, about $195/mo. That $195/mo is how you judge if the cost is worth it or the break-even time. $2000? Well, 10 months, then you are ahead.  If you disclose the time remaining, I am happy to edit the answer to reflect your numbers, I'm just sharing the correct process for analysis.  Disclosure - I recently did my last (?) refi to a 15yr fixed 3.5%. The bank let the HELOC stay. It's 2.5%, and rarely used. There's several different trade-offs wrapped up in your question. In general, refinancing a mortgage to a lower interest rate makes sense if you are certain you'll be living in the house for N years.  N depends on your closing costs and points.  Basically you need to calculate the break-even point for when the savings from the reduced interest rate exceeds the cost of the re-fi.  When I refinanced, the broker did the calculations for me for a range of options, maybe yours could as well. The trade off in selecting 30-year vs. 15-year is between monthly payment and total outlay.  A 15-year mortgage will have a higher monthly payment, but the total money that is paid out the bank (rather than to your equity) will be less. Using the Heloc to do the down payment seems sketchy; plus then you have two loan payments you're making each month.  Why not keep it simple and look for a $250k loan with 5% down?  Presumably with the current mortgage you already put in a good down payment, and have built some equity up. Unless I'm missing something, this doesn't make sense at all.  Why take out money at 3.25% (the Heloc) to reduce the balance on a 3% loan (the refi)?  It would be better to move as much from the Heloc to the refi as possible to get the best rate.  If this results in a lower monthly payment, keep paying the higher payment and you'll be better off.
Really the question you need to ask yourself is how much Risk you want to take in order to save a little on interest for 5 years. Rates are pretty close to a historic low, and if you have good credit you should shop around a bit to get a good ideal of what a 15 or 30 year fixed loan would go for. For people that are SURE they will be selling a property in a few years, a 5-yeah balloon, or ARM might not be a bad thing.  OTOH, if their plans change, or if you plan to stay in the property for longer (e.g. 10-15 years) then they have the potential to turn into a HUGE trap, and could have the effect of forcing you to sell your house.   The most likely people to fall into such a trap are those who are trying to buy more house than they can really afford and max out what they can pay using a lower rate and then later cannot afford the payments if anything happens that makes the rate go up.  Over the last three years we've seen a large number of foreclosures and short-sales taking place are because of people who fell into just this kind of trap..  I strongly advise you learn from their mistakes and do NOT follow in their footsetps  You need to consider what could happen in 5 years time.   Or if the economy takes off and/or the Fed is not careful with interest rates and money supply, we could see high inflation and high interest rates to go along with it.   The odds of rates being any lower in 5 years time is probably pretty low.  The odds of it being higher depends on who's crystal ball you look at.  I think most people would say that rates are likely to increase (and the disagreement is over just how much and how soon).  If you are forced to refinance in 5 years time, and the rates are higher, will you be able to make the payments, or will you potentially be forced out of the house? Perhaps into something much smaller.  What happens if the rates at that time are 9% and even an ARM is only 6%? Could you make the payments or would you be forced to sell?   Potentially you could end up paying out more in interest than if you had just gotten a simple fixed loan. Myself, I'd not take the risk.  For much of the last 40 years people would have sold off their children or body parts to get rates like we have today on a standard fixed loan.  I'd go for a standard fixed loan between 15 and 30 years duration.  If you want to pay extra principle to get it paid off earlier in order to feel more secure or just get out from under the debt, then do so (personally, I wouldn't bother, not at today's rates) "Assuming you've got no significant prepayment penalty, I would think about getting a longer mortgage, but making payments like it was a shorter mortgage. This will get the mortgage paid off in a shorter time period - but if you run into financial difficulties and/or find a better use for your money, you can drop back to paying the minimum necessary to retire the loan in 30 years without needing to refinance. (If you need to reduce your payments because you're between jobs, you don't have a very good negotiating position).  For the most part, there's nothing that says you can only make one payment per month, or that it must be in the amount printed on the statement. If you want to, you can make payments weekly (or biweekly, or every 4 weeks) which typically means that you'll pay more every year. If your mortgage payments are $1000/month, that's $12,000 per year. If you tell yourself that 1000/month = $250 weekly and make yourself send a payment every week (or 500 every 2 weeks), you'll end up paying 250 * 52 = $13,000 per year, without particularly feeling the difference, especially if you get paid on a weekly/biweekly schedule instead of monthly or semi-monthly. Also, by paying more often, you're borrowing a tiny bit less money over the course of the year (because the money didn't sit in your account waiting until the 1st of the month to make a payment) so you save a little in interest there, too.  Think of ""30 years"" or ""10 years"" as the basis for a minimum payment schedule, not necessarily the length of time that you or the lender really intend to keep the loan." As mentioned, the main advantage of a 15-year loan compared to a 30-year loan is that the 15-year loan should come at a discounted rate.  All things equal, the main advantage of the 30-year loan is that the payment is lower. A completely different argument from what you are hearing is that if you can get a low interest rate, you should get the longest loan possible.  It seem unlikely that interest rates are going to get much lower than they are and it's far more likely that they will get higher.  In 15 years, if interest rates are back up around 6% or more (where they were when I bought my first home) and you are 15 years into a 30 year mortgage, you'll being enjoying an interest rate that no one can get. You need to keep in mind that as the loan is paid off, you will earn exactly 0% on the principal you've paid.  If for some reason the value of the home drops, you lose that portion of the principal.  The only way you can get access to that capital is to sell the house.  You (generally) can't sell part of the house to send a kid to college.  You can take out another mortgage but it is going to be at the current going rate which is likely higher than current rates. Another thing to consider that over the course of 30 years, inflation is going to make a fixed payment cheaper over time.  Let's say you make $60K and you have a monthly payment of $1000 or 20% of your annual income.  In 15 years at a 1% annualized wage growth rate, it will be 17% of your income.  If you get a few raises or inflation jumps up, it will be a lot more than that.  For example, at a 2% annualized growth rate, it's only 15% of your income after 15 years. In places where long-term fixed rates are not available, shorter mortgages are common because of the risk of higher rates later.  It's also more common to pay them off early for the same reason.   Taking on a higher payment to pay off the loan early only really only helps you if you can get through the entire payment and 15 years is still a long way off.  Then if you lose your job then, you only have to worry about taxes and upkeep but that means you can still lose the home.  If you instead take the extra money and keep a rainy day fund, you'll have access to that money if you hit a rough patch.  If you put all of your extra cash in the house, you'll be forced to sell if you need that capital and it may not be at the best time.  You might not even be able to pay off the loan at the current market value. My father took out a 30 year loan and followed the advice of an older coworker to 'buy as much house as possible because inflation will pay for it'.  By the end of the loan, he was paying something like $250 a month and the house was worth upwards of $200K.  That is, his mortgage payment was less than the payment on a cheap car.  It was an insignificant cost compared to his income and he had been able to invest enough to retire in comfort.  Of course when he bought it, inflation was above 10% so it's bit different today but the same concepts still apply, just different numbers.  I personally would not take anything less than a 30 year loan at current rates unless I planned to retire in 15 years. I Usually would not say this but if you can just put down 20% I would do that and get a 15 year mortgage.  The rates are so low on 15 year mortgage that you should be able to make more than the 3% in the market per year and make some money.  I wouldn't be surprised if for 1/2 of the term of your loan you will be able to make that just in interest.  Basically I have done this for my house and my rental properties.  So I have put my money where my mouth is on this.   I have made over 9% each of the last three years which has made me $12,000 dollars above and beyond over what I would have paid in interest per year.  So it a decision that net me $36,000 for doing nothing.  Now the market is going to be down some of those years so lets see how it works out but I have history on my side.  Its not about timing the market its about time in the market.  And 15 years in the market is a pretty safe bet albeit not as safe as just dumping you money in the mortgage. The more you put down now, the less money you are borrowing.  30yrs of interest adds up. Even paying a small amount at the beginning of the mortgage can turn into a huge savings over the life of the loan. That's why you'll find advice to make extra mortgage payments in the beginning.  The question is: Do you have a better use for that money?   In particular, do you have any higher-interest debt (higher APR than your mortgage) that needs to be paid off?  You generally want to take care of those first.   Beyond that can you invest the extra down payment money elsewhere (eg stock market) and get a better return than your mortgage rate?  (don't forget about taxes on investment profits). If so, that money will do more good there. Other people have belabored the point that you will get a better rate on a 15 year mortgage, typically around 1.25 % lower. The lower rate makes the 15 year mortgage financially wiser than paying a 30 year mortgage off in 15 years.  So go with the 15 year if your income is stable, you will never lose your job, your appliances never break, your vehicles never need major repairs, the pipes in your house never burst, you and your spouse never get sick, and you have no kids. Or if you do have kids, they happen to have good eyesight, straight teeth, they have no aspirations for college, don't play any expensive sports, and they will never ask for help paying the rent when they get older and move out.  But if any of those things are likely possibilities, the 30 year mortgage would give you some flexibility to cover short term cash shortages by reverting to your normal 30 year payment for a month or two. Now, the financially wise may balk at this because you are supposed to have enough cash in reserves to cover stuff like this, and that is good advice. But how many people struggle to maintain those reserves when they buy a new house?  Consider putting together spreadsheet and calculating the interest cost difference between the two strategies. How much more will the 30 year mortgage cost you in interest if you pay it off in 15 years? That amount equates to the cost of an insurance policy for dealing with an occasional cash shortage. Do you want to pay thousands in extra interest for that insurance? (it is pretty pricey insurance) One strategy would be to go with the 30 year now, make the extra principal payments to keep you on a 15 year schedule, see how life goes, and refinance to a 15 year mortgage after a couple years if everything goes well and your cash reserves are strong. Unfortunately, rates are likely to rise over the next couple years, which makes this strategy less attractive. If at all possible, go with the 15 year so you lock in these near historic low rates. Consider buying less house or dropping back to the 30 year if you are worried that your cash reserves won't be able to handle life's little surprises. With interest rates as low as they are, you could lock in to a very low rate for 30 years. If rates are higher in, say, 10 years, you could conceivably be earning a much higher rate on the money you're not putting towards monthly payments. All else equal, the payments will be lower on a 30y than they will be on a 10y, so you'll have more cash for other things. But I'm just looking for downsides -- being paid off in 10 years versus 30 sounds nice to me. I'm calculating that to about a 7% apr, which given loan rates available today seems a bit high.   I wouldn't get too caught up on what that equates to over the life of the loan.  There are a lot of forces in play over a 30 year period, namely the time value of money.  30 years from now a dollar will be less valuable in real terms due to the forces of inflation.  At 2% per year in inflation today's $1 will be worth about $0.55 in 30 years.