Borrowers Opt for Shorter Loan Terms
Record-reaching low interest rates have prompted more home owners to shorten the terms of their mortgages. Thirty-four percent of refinancers changed their loan to a 20- or 15-year mortgage during the first quarter — the highest level in seven years, Freddie Mac reports.
Mortgage companies are also reporting a higher demand for shorter-term mortgages. For example, LendingTree reports that 15-year mortgages have increased 30 percent from a year ago.
Quicken Loans recently debuted a product that allows borrowers to select the term of their mortgage. The most popular mortgage term selected is 8 years, followed by 13 years.
“Mortgage-burning parties are back,” Bob Walters, chief economist for Quicken Loans, told USA Today.
Shortening the term of a mortgage can save home owners “tens or even hundreds of thousands of dollars in interest costs,” Keith Gumbinger, vice president of HSH Associates, told USA Today. Some borrowers are finding that refinancing into a shorter term may not even increase their monthly payments, since 15-year rates are so low.
However, some borrowers who want to refinance are finding they’re being shut out, experts say. Home owners who don’t have a credit score of 720 or higher or don’t have at least 20 percent in home equity may not qualify for the lowest rates.
Source: “More Home Owners Shorten Mortgage Terms,” USA Today (Aug. 15, 2011)