Nearly a Third of Refinancers Choose 15-Year Fixed

June 17, 2011 No Comments »

15 year

Shorter term mortgages continue to gain in popularity.

In January, a staggering 29 percent of refinancing borrowers went with the 15-year fixed, up from just 11 percent two years ago, according to the most recent data available from CoreLogic, as cited by Bloomberg.

That’s a pretty impressive increase, spurred by the widening spread between the largely more popular 30-year fixed mortgage and the 15-year fixed mortgage.

The spread hit a record high 0.82 percent last month, per mortgage financier Freddie Mac, whose data goes back to 1971. That’s quite a gap, seeing that the two loan programs are often priced just a quarter percent or so apart.

Demand is apparently up because investors are more interested in these types of loans, as they tend to go to older, lower-risk borrowers.

You know, the types that can and will actually pay off their mortgage, instead of defaulting and going into foreclosure. There’s some value there, even if the interest rate is a bit lower.

In the latest week, the 30-year fixed averaged 4.50 percent, while the 15-year fixed came in at 3.67 percent.

Obviously, that can equate to serious savings on your mortgage interest, assuming you can afford higher mortgage payments. It might even sway some borrowers to go with the shorter-term loan program, even if they’re in no rush to get free and clear.

Quick example of the monthly payment difference:

Loan amount: $400,000
30-year fixed payment: $2026.74 @4.50%
15-year fixed payment: $2893.04 @3.67%

While the 15-year fixed payment is significantly higher, those refinancing may have lowered their original mortgage rate two percentage points or more, making the difference in payment from a 30-year fixed to a 15-year fixed minimal.

Additionally, because these borrowers are going with a mortgage term that is half the length of a traditional 30-year fixed, the mortgage amortizes much more quickly, resulting in much less interest being charged.

So for those who can afford it, the savings can be immense.

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