More Refinancing Borrowers Go With Shorter Terms

February 16, 2011 No Comments »

shorter

Of borrowers who refinanced a 30-year fixed-rate mortgage, a whopping 32 percent opted for a shorter term loan, such as a 15-year of 20-year fixed loan product, according to mortgage financier Freddie Mac‘s fourth quarter Product Transition Report.

It was the highest such share since the first quarter of 2004.

Meanwhile, 70 percent of borrowers who refinanced a 20-year fixed mortgage went with a 15-year loan, the highest percentage ever in Freddie’s analysis.

And overall, 2010 had the largest percentage of borrowers who shortened their loan terms while refinancing since 2003.

Homeowners were able to do so because mortgage rates had dropped so much that mortgage payments weren’t any higher (perhaps marginally so), despite the shorter term.

This means thousands of dollars in saved interest over the life of the new loans for borrowers lucky enough to refinance.

Unfortunately, not everyone was able to get their hands on the record low mortgage rates, thanks to issues like negative equity and more stringent underwriting guidelines.

As expected, fixed-rate mortgages dominated all refinance transactions, with more than 95 percent of borrowers choosing fixed-rate products, regardless of whether they had an adjustable-rate mortgage or fixed mortgage prior.

Just over two-thirds who had a 30-year fixed stayed with the popular loan program post-refinance.

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