Homeowners Move Away From 30-Year Mortgages

MortgagesMany homeowners who are refinancing their mortgages have been abandoning 30-year fixed-rate loans for 15-year and 20-year loans.

According to the Freddie Mac Quarterly Product Transition Report, 37% of those who refinanced a mortgage in the second quarter picked a 15-year or 20-year plan to replace their 30-year fixed-rate obligation. This was the highest number since the third quarter of 2003, when the U.S. housing boom was getting underway.

"Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second quarter," Frank Nothaft, Freddie Mac vice president and chief economist, said in a press release. "For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term."

Fixed-rate loans accounted for 95% of refinanced loans during the quarter, according to the report.

Why 30-Year Loans are Less Fashionable Now

The lowest interest rates on record may have encouraged people to reduce their terms. People may not want the weight of a mortgage over their heads for three decades. Some also might now believe it will take less than 30 years for them to be able to sell their homes if they want to, which -- until recently, with the collapsed housing market -- seemed like less than a sure bet. Why sell a house with a mortgage when eventually it can be sold "free and clear"?

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The choice to shorten a mortgage term may have offsetting impacts. A homeowner with a new mortgage of 15-years may save tens of thousands of dollars in interest over the course of the loan. The mortgage holder may also get much less of a tax deduction over the period they hold their loans. On the other hand, people may also feel that if they have little or no home equity, a 30-year obligation to pay for a home is a poor use of funds.

While economists speculate about why people choose among 15-year, 20-year, or 30-year mortgages, one thing is certain. The decisions are mainly being made by those who are refinancing, not buying. Far fewer mortgages are being used to buy new homes. Virtually every piece of housing data points to that.

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My parents have recently taken out a reverse mortgage-At first I thought it was a horrible idea since we have had the home in our family now for many generations but after speaking to my lender they explained that my parents home be mine as long as I can pay off anything that the borrow.

November 28 2013 at 1:56 AM Report abuse rate up rate down Reply

Only 15 years of slavery is better than 30 years. Banks create money when we borrow. This new money inflates the money supply and makes the economy good. But it sets us up for a deflationary crash that happens when the pay back time arrives. Google for "HOW DO BANKS CREATE MONEY" to understand how the debt based monetary system works.

September 28 2011 at 1:37 AM Report abuse rate up rate down Reply

Obama says "buy American" while he tours the country in his bus MADE IN CANADA. Typical Obama hypocrisy! Keep buying his crap libs!

August 18 2011 at 9:10 AM Report abuse rate up rate down Reply

Beware of the wording regardless of the rates, seems some of the biggest lenders and sponsored morgages have clauses that are considered legally "Black Death," primarily because they give the lending institutions the "Right" to "force place insurance" regardless of whether you have insurance, the rates are excessive and often times don't provide the coverage that you hold. The idea is to make commisions on the policies sold by the bank representative. The wording also give the lending institution to demand repairs that "they deem" need to be done based on their determination. Be careful people the banking systems are still not satisfied with their profits and will find another way to work within the fine print, some of which is to fund institutions such as FEMA. Then there is MDA a Canadian firm that provides satilite data to the military that contracts to digitalize flood maps that in tern gives your institutions the right to mandate flood insurance on properties within a certain distance from any Army Corp. of Engieer's construction site, it's all about making up for INSURANCE LOSSES, like they loose! Get the rate but check the wording, I suggest you look into CREDIT UNIONS rather then BANKS and MORTGAGE COMPANIES. Just sharing my experience, who can afford a 200 to 600 dollar hike in their mortgage, then again default and the Bank will take your property, what a beautiful system, bu their for the people RIGHT!

August 17 2011 at 9:06 PM Report abuse rate up rate down Reply

My understanding is that one can take out a 30-year mortgage and make extra payments along the way whenever possible and come out about the same financially instead of taking out a 15-year mortgage and risking a higher payment and perhaps not be able make a few payments. Not sure about this, but if you're in good financial shape, do what's best!

August 17 2011 at 5:16 PM Report abuse rate up rate down Reply

The 15 or 20 fixed is not a bad option, but how good are the loan officers helping them? Are they making sure that they can comfortably afford those terms? I found a blog that actually talked about loan officers here.


August 17 2011 at 4:45 PM Report abuse rate up rate down Reply

This is an easy decision why go 30 years and pay all the extra interest. Home prices are way down, interest rates are very low mortgage payments are lower than rent even at 15 or 20 year mortgage time for buyers to take advantage and move on. www.wesayes.com

August 17 2011 at 2:49 PM Report abuse -1 rate up rate down Reply

I am nearing the end of my 30 yr fixed mortage loan, almost close enough to pay off lump sum. 1 1/2 years ago I tried to get a refi to 15 year fixed (at two different sources) but the with closing costs, etc it just didn't seem to add up much on savings. So since then I have paid additional on principle and it appears that is just a useful than getting the refi.

August 17 2011 at 2:25 PM Report abuse rate up rate down Reply
1 reply to netexas121's comment

Exactly. Problem is there's no place for smart men on this forum.

August 18 2011 at 7:27 AM Report abuse rate up rate down Reply

I used to be an Obama detractor. But, since Obama has increased to use of economics and finance in the form public announcements and policies, I have changed my mind. The more that this "president" speaks, the more money I make. For example, I just bought a house which was assessed at $535,000 for a little under $114,000 (cash) and had it rented immediately for $2,100 a month. That works out to about 22% annual ROI, not including the tax ramifications. I have to thank Obama for his naive meddling in the complicated workings of the U.S. economy. Keep up the good work, you're making me money ! Finally, pay cash don't mortgage and you'll always get a better deal.

August 17 2011 at 12:42 PM Report abuse -1 rate up rate down Reply

Rick Perry, a Bush-alike, (with better hair) but an American middle-class killing agenda nonetheless. The "jobs" he creates will allow you to work a hundred hours a week and still live in a cardboard box. If h doesn't win, maybe he can just continue creating his own country in Texas.

August 17 2011 at 11:33 AM Report abuse -2 rate up rate down Reply
3 replies to manmi1's comment