WHEN YOU REFINANCE, YOU may be tempted to move from a traditional 30-year mortgage to a 15-year mortgage that allows you to build equity faster and pay less interest.

Before you take that step, figure out whether a larger monthly payment fits in your budget or whether you should simply pay more toward your current mortgage. Also, consider whether you’ll be approved for a new mortgage as the coronavirus downturn has led to stricter lending standards.

Here’s what you need to know to help you decide whether to refinance to a 15-year mortgage.

What Is the Difference Between a 30-Year and a 15-Year Mortgage?

The main difference is that a 15-year mortgage is half the length, meaning you’ll pay less interest over the life of the loan compared with a 30-year mortgage. But you’ll also make bigger payments, as you’ll pay off your mortgage in 180 installments instead of 360.

Despite interest savings, mortgages paid off over 30 years are the most popular type by far, says Mark O’Dell, manager of residential loans at Chicago’s Alliant Credit Union.

Some banks offer 15-year mortgage terms as well as lesser-known 10-year and 20-year mortgages.

Is Refinancing Worthwhile?

Refinancing is worth it if you can save enough money on your monthly payment to cover the cost to obtain your new loan.

Closing costs range from about 2% to 3% of the loan amount. That means you would pay between $6,000 and $9,000 on a $300,000 mortgage.

Let’s say you spent $6,000 to refinance. You would need to save $200 on your monthly payment over two and half years to recover the cost.

“The goal when people refinance is to lower the interest rate and lower the monthly payment” and then use the money toward other aims, such as savings, says Ron Haynie, senior vice president of mortgage finance policy, Independent Community Bankers of America.