More Borrowers ReFi into Shorter Terms of 15-, 20-Year Mortgages

More homeowners who refinance are opting into shorter-term mortgages from the traditional 30-year fixed loans, according to Freddie Mac.
Of borrowers who paid off a 30-year fixed-rate loan in the third quarter, 40 percent chose a 15- or 20-year loan, the highest such share since the second quarter of 2003, according to Freddie Mac’s latest Quarterly Product Transition Report.
Historically low interest rates were the big motivator.
Fixed mortgage rates averaged 4.29 percent for 30-year loans and 3.47 percent for the 15-year product during the third quarter.
And rates continue to hover near 4 percent for the still-popular 30-year fixed rate loan.
Of borrowers paying off 30-year fixed rate mortgages, 25 percent moved into a 15-year fixed rate mortgage, while 15 percent refinanced into a 20-year fixed rate product.
“Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third 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.”
In the third quarter, the median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a decline of about 22 percent in the interest rate. Over the first year of the refinance loan life, these borrowers will save about $2,500 in interest payments on a $200,000 loan.
Sixty-three percent of borrowers who held a hybrid ARM (adjustable rate mortgage) chose a fixed-rate loan during the third quarter, while the remaining 37 percent chose to refinance into the same type of product.

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