Why Refinance? Shorter Mortgages

Mortgage refinance

These days, millions of homeowners all across the country are looking for ways to reduce the costs they face when it comes to paying their mortgages. Many have sought refinances in the last few years, and their reasons for doing so seem to be changing.

Obviously, the point of refinancing a mortgage is to make monthly payments more affordable, largely by reducing the interest rate charged on the loan. But these days, many consumers are turning more often toward paying more cash at closing to slash their principal and, more recently, reducing the term of their mortgage, according to new data from the home loan-backing giant Freddie Mac. In fact, during the third quarter, 29 percent of borrowers who refinanced chose to reduce the term of their mortgage, compared with 3 percent who opted to increase it. The remaining 68 percent kept their loan terms the same.

Further, more than 95 percent of borrowers opted to take advantage of the current extremely low fixed-rate terms available on the mortgage market, the report said. That includes 82 percent of refinancers who previously had hybrid adjustable-rate mortgages, the highest share observed since the second quarter of 2010.

“Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about 0.7 percentage points lower during the third quarter,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”

In fact, the most recent data from the government-sponsored enterprise shows that fixed rates for 15-year mortgages hovered at an average of just 2.84 percent over the course of the third quarter, the report said. That’s compared with 3.55 percent for 30-year FRMs.

Meanwhile, with property values rising in many parts of the country, current homeowners may now be considering selling once again, a prospect many abandoned during and following the recession. These increasing prices also led to millions of borrowers who previously were underwater on their mortgages to become right side up again. Many experts believe that appreciation in this area will continue through at least the next few months.

offers straightforward tips and advice to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today! Have a question for our experts? Get the answer in the Credit.com Forum.

Related Topics

Personal Finances Refinance
Connect
Get the

Money Matters

Sign-up
Newsletter

Contributor

About

Credit.com provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!

Related Links:

Can You Really Get Your Credit Score for Free?
The Ultimate Credit Report Cheat Sheet
Three Ways to Fight Military Identity Theft

headerPaycheckChronicles

Paycheck Chronicles

AAFES Offering Free Holiday Layaway

Just in time for the pre-holiday season, Army and Air Force Exchange Services (AAFES) will be waiving the usual $3 layaway fee for eligible purchases. This program, which began on 12 September, allows AAFES customers to make purchases of $25 or more and pay the balance between the purchase date and 24 December without an […]

© 2014 Military Advantage
A Monster Company.