Homeowners Move Away From 30-Year Mortgages
According to the Freddie Mac Quarterly Product Transition Report, 37% of those who refinanced a mortgage in the second quarter picked a 15-year or 20-year plan to replace their 30-year fixed-rate obligation. This was the highest number since the third quarter of 2003, when the U.S. housing boom was getting underway.
"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," Frank Nothaft, Freddie Mac vice president and chief economist, said in a press release. "For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term."
Fixed-rate loans accounted for 95% of refinanced loans during the quarter, according to the report.
The lowest interest rates on record may have encouraged people to reduce their terms. People may not want the weight of a mortgage over their heads for three decades. Some also might now believe it will take less than 30 years for them to be able to sell their homes if they want to, which -- until recently, with the collapsed housing market -- seemed like less than a sure bet. Why sell a house with a mortgage when eventually it can be sold "free and clear"?
While economists speculate about why people choose among 15-year, 20-year, or 30-year mortgages, one thing is certain. The decisions are mainly being made by those who are refinancing, not buying. Far fewer mortgages are being used to buy new homes. Virtually every piece of housing data points to that.