One in Four Opt for 15-Year Mortgage When Refinancing

By:: Kara Johnson | August 30, 2010

Homeowners able to refinance their mortgages are increasingly looking to shorten up the term by converting to a 15-year loan, according to the financial data company CoreLogic.

In the first half of the year, 26 percent of all homeowners who refinanced their mortgages – more than one in four – chose to refinance into 15-year fixed-rate loans. That’s compared to 18.5 percent in 2009 and only 9.4 percent in 2004, according to Amy Hoak of Marketwatch, who reported the trend.

Fifteen-year mortgages have traditionally been of interest to only a limited number of borrowers. Although they come with lower interest rates than “standard” 30-year mortgages and enable homeowners to pay off their home loans much faster, they can be expensive in the short term – the monthly payment on a 15-year mortgage is typically almost half again as high as for a comparable 30-year loan.

However, interest rates have fallen so far that homeowners are giving 15-year mortgages a second look. With average rates on 15-year mortgages falling to 3.86 percent last week, according to the Freddie Mac rate survey, those loans are starting to look a lot more affordable.

That’s particularly true for homeowners who’ve been in their homes for a number of years and have made some progress in paying down their loan. A borrower who’s been in their home for 5-10 years may find they can shorten the remaining term on their loan with only a small increase in their current monthly payments.

Many homeowners these days are also focusing on retiring debt as quickly as possible. With the shaky economy and the recent sharp downturns in home values, many seem to be opting to get their finances squared away as quickly as possible. In the past, many opted for minimal home payments in the assumption that steadily rising home values would build equity for them; few make that assumption today.

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