Paying Off the House in 15 Years
A growing number of homeowners are choosing to pay down their mortgages at a faster rate–even if it means a substantial jump in their monthly payments.
Between January and June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term.
Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, says Bob Walters, chief economist at online lender Quicken Loans.
The average rate on a 15-year fixed-rate mortgage was 3.86% for the week ending Aug. 26, according to Freddie Mac’s weekly survey of conforming mortgage rates.
A Change in Thinking
The financial situation of those capable of refinancing today is a factor in the shift, Mr. Walters says. These people typically are homeowners with the best credit and the most equity — and, therefore, most suited for a shorter-term loan.
But there might be some other psychology at work. “We’re seeing a different view on debt than maybe we’ve seen in the past,” he says…
Doing the Math
Refinancing into a shorter-term mortgage isn’t a strategy for everyone, however.
Choosing a shorter term usually means you’ll get a better rate–and you’ll pay much less interest over the life of the loan–but a shorter time frame ramps up monthly mortgage payments…
Make That Extra Payment
Borrowers who don’t meet those standards, or are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments on the principal to pay off the loan faster, says Mr. Walters…