Fifteen-year mortgage loans gain popularity
Mortgage rates continued to drop during the week ending August 12, enticing more homeowners to apply for a mortgage refinance.
According to the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey, refinance application volume increased by 8 percent over the previous week, rising to 78.8 percent of all loan applications.
Mortgage loans with fixed-rate most popular
Fixed-rate mortgages accounted for about 95 percent of all refinance mortgage loans during the second quarter of 2011, according to Freddie Mac, regardless of whether their original loan was an adjustable rate mortgage (ARM) or a fixed-rate home loan.
Fifteen-year fixed-rate home loans have been particularly popular because of their low rates and because of the impetus of many Americans to reduce their level of debt. According to Freddie Mac, of borrowers who paid off a 30-year fixed-rate loan, 37 percent opted to shorten their loan term with a 20-year or a 15-year loan, the highest such share since the third quarter of 2003.
“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,” said Frank Nothaft, Freddie Mac vice president and chief economist. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.”
Nothaft said some borrowers, especially those who plan to stay in their current home for a only a few years, should consider the benefits of an ARM. Nothaft says the initial interest rate on a 5/1 hybrid ARM was about 1.2 percentage points lower than on a 30-year fixed-rate loan during the second quarter of 2011.
According to HSH.com, the average interest rate for a 15-year fixed-rate home loan was 3.76 percent for the week ending August 12 and 4.53 percent for a 30-year fixed-rate loan. The average rate for a 5/1 ARM was 3.25 percent.
If you are considering a mortgage refinance, be sure to look at your options beyond a 30-year fixed-rate home loan to see if you can afford a shorter loan term or if an ARM meets your needs.
