Shorter-term mortgages gain favor for refinancing
By
Stephanie
Armour,
USA TODAY
More homeowners are refinancing into shorter-term
loans, saving a bundle by taking advantage of the
lowest mortgage rates in decades.
Nearly a third of borrowers refinancing fixed 30-
year loans in April through June picked loans with
15- or 20-year terms, according to mortgage
finance giant Freddie Mac. It was the highest share
since 2004.
The trend has been driven by near-weekly drops in
rates all summer.
Average rates on fixed 15-year loans fell below 4%
for the first time last week, dropping to 3.92%,
according to Freddie Mac. A year ago, the average
15-year rate was 4.68%.
Meanwhile, the rates on fixed 30-year loans now
average 4.44%, Freddie Mac found.
At today's rates, a borrower with a 30-year loan at a
6.5% interest rate and a $200,000 principal balance
could save some $70,000 in interest over the life of
a shorter 20-year loan.
"It's borrowers looking to build equity more quickly,
and borrowers have generally been paying down
their loans more quickly," says Keith Gumbinger,
vice president of HSH Associates, a publisher of
mortgage and consumer loan information.
Peter Iche, president of Carthage Federal Savings
and Loan Association in Carthage, N.Y., says he's
seen an increase in people who are approaching
retirement refinancing to shorter-term loans.
"They realize that they can afford a heavier payment,"
he says. "They're getting closer to retirement where
they are willing to suck it up for a few years."
Most of the customers trying to refinance to
shorter-term loans usually qualify, he says. And
with rates as low as they are now, "For the group of
people that can afford to do it, it's a good time to
wrap things up."
Many can't, however.
With rates at record lows, a higher volume of
refinancings would be expected, says Mark Zandi of
Moody's Analytics.com. But high unemployment and
lost home equity is preventing many borrowers from
doing so, he says.
Application volume for both home-purchase
mortgages and refinancings has been tepid because
many potential borrowers lack high enough credit
scores, sufficient income or enough equity in their
homes to qualify for new loans.
Borrowers' monthly payments rise when they
refinance into a shorter-term loan, so lenders
generally require borrowers to have higher monthly
incomes to get a 15-year mortgage than a 30-year.
In addition, because property values in many areas
have fallen sharply the past three years, about a
quarter of residential properties with mortgages are
worth less than the loan balances.
The Schacter Team - Langley Real Estate
More homeowners are refinancing into shorter-term
loans, saving a bundle by taking advantage of the
lowest mortgage rates in decades.
Nearly a third of borrowers refinancing fixed 30-
year loans in April through June picked loans with
15- or 20-year terms, according to mortgage
finance giant Freddie Mac. It was the highest share
since 2004.
The trend has been driven by near-weekly drops in
rates all summer.
Average rates on fixed 15-year loans fell below 4%
for the first time last week, dropping to 3.92%,
according to Freddie Mac. A year ago, the average
15-year rate was 4.68%.
Meanwhile, the rates on fixed 30-year loans now
average 4.44%, Freddie Mac found.
At today's rates, a borrower with a 30-year loan at a
6.5% interest rate and a $200,000 principal balance
could save some $70,000 in interest over the life of
a shorter 20-year loan.
"It's borrowers looking to build equity more quickly,
and borrowers have generally been paying down
their loans more quickly," says Keith Gumbinger,
vice president of HSH Associates, a publisher of
mortgage and consumer loan information.
Peter Iche, president of Carthage Federal Savings
and Loan Association in Carthage, N.Y., says he's
seen an increase in people who are approaching
retirement refinancing to shorter-term loans.
"They realize that they can afford a heavier payment,"
he says. "They're getting closer to retirement where
they are willing to suck it up for a few years."
Most of the customers trying to refinance to
shorter-term loans usually qualify, he says. And
with rates as low as they are now, "For the group of
people that can afford to do it, it's a good time to
wrap things up."
Many can't, however.
With rates at record lows, a higher volume of
refinancings would be expected, says Mark Zandi of
Moody's Analytics.com. But high unemployment and
lost home equity is preventing many borrowers from
doing so, he says.
Application volume for both home-purchase
mortgages and refinancings has been tepid because
many potential borrowers lack high enough credit
scores, sufficient income or enough equity in their
homes to qualify for new loans.
Borrowers' monthly payments rise when they
refinance into a shorter-term loan, so lenders
generally require borrowers to have higher monthly
incomes to get a 15-year mortgage than a 30-year.
In addition, because property values in many areas
have fallen sharply the past three years, about a
quarter of residential properties with mortgages are
worth less than the loan balances.
The Schacter Team - Langley Real Estate