The mortgage landscape has changed a ton over the past several years.
Mortgage lending guidelines have firmed tremendously since the housing crisis took hold, and mortgage rates have fallen to all-time lows.
Meanwhile, home prices seem to have bottomed, and decent price appreciation is in the forecast.
This has created an interesting environment for both prospective and existing homeowners.
Perhaps one of the biggest changes in thought is that those who take out a mortgage today will keep it for as long as they own their home.
In the past, this wasn’t the case, with mortgage rates very high, and then in a downward trend for many years since.
Even recent homeowners were able to refinance just six months or a year after purchasing their homes, thanks to the precipitous drop in interest rates.
But that march downward seems to have come to an end, and that means far fewer refinances, and slower prepayment speeds.
It also makes the question of what type of mortgage to take out more difficult.
Additionally, one really has to question whether they should buy down their mortgage rate.
Most People Keep Their Homes for Six Years
Take a look at this chart from the National Association of Realtors Profile of Home Buyers and Sellers.
The median tenure for a home seller over the past two decades has been just six years. I guess forever homes are a thing of the past.
As you can see, tenure increased after the mortgage crisis, mainly because underwater mortgagors had no choice but to wait it out.
But many of those who persevered have now listed their homes, just as they are getting their heads above water.
The point I’m trying to make is that very few mortgages are actually held to term, or anywhere close to it.
For one reason or another, mortgages just don’t last that long, despite many being 30-year fixed mortgages.
Both offer lower mortgage rates than their fixed-rate cousins, which would result in a lower monthly payment, less interest paid, and more principal accrued.
Yet most homeowners seem reluctant to go with an ARM, perhaps because it’s difficult to predict the future.
Still, the numbers don’t lie – scores of homeowners are on the move in just six short years, whether they hold 30-year fixed mortgages or whatever else.
Will You Keep Your House Longer Now?
As I noted, the landscape has changed quite a bit. So will the same trend hold true going forward, or will more homeowners choose to stay put for longer?
I’m sure the average homeowner tenure will increase somewhat, but probably not by that many years. There will still be tons of homeowners that sell in a short period of time for a bevy of reasons.
And so homeowners will continue to take out long-term fixed mortgages that don’t do them much good, aside from the peace of mind of knowing their rate won’t change.
Of course, rates on fixed mortgages and ARMs aren’t all that different at the moment, so it’s not a terrible mistake to make, if you can even call it a mistake.
But what’s more worrisome is that some homeowners are paying to refinance, or paying mortgage points at closing to obtain a lower rate.
Unfortunately, many of these homeowners won’t hold their mortgages long enough to benefit from the future savings. So use a refinance calculator if you’re thinking about doing this.
After all, the trend to sell in 10 years or less is one that will be hard to shake, even in light of the unprecedented situation we find ourselves in today.
Still, you should definitely ponder the fact that the mortgage rate you receive today will likely be the lowest you’ll ever have – that may sway your decision to part with it so soon.
Read more: Are mortgage points worth it?