Low Mortgage Rates Attracting More Short-term Borrowers | The ...

Low Mortgage Rates Attracting More Short-term Borrowers

By E. Scott Reckard

RISMEDIA, Tuesday, June 05, 2012?

(MCT)?As mortgage rates sink deeper into record territory, homeowners are refinancing into 15-year loans at a pace not seen in a decade, aiming to pay off their debt in time for retirement.

Freddie Mac?s latest mortgage rate survey showed the traditional 30-year fixed-rate loan averaged 3.75 percent last week, down from 3.78 percent last week. It was the fifth straight week of record lows.

Even more eye-catching in Thursday?s survey was the average for a 15-year fixed loan ? 2.97 percent, down from 3.04 percent a week ago. It was the first sub-3 percent reading in the nearly 21 years that Freddie has tracked the 15-year loan.

With housing markets still troubled, the rates are mainly benefiting refinancers whose luck or self-discipline has left them with significant home equity. Purchase lending remains sluggish: The Mortgage Bankers Association says that fewer than a quarter of mortgages these days are used to buy homes.

But the latest surge in refinancings caused the trade group last week to boost its projection for mortgage volume this year by nearly $200 billion, to $1.28 trillion.

People refinancing mortgages often debate the merits of 15-year or 20-year loans that may hasten their payoff date but require bigger payments than a 30-year mortgage. At the rates quoted this week by Freddie Mac, the monthly principal and interest payment on a 30-year fixed loan of $315,000 would be $1,458.81, compared with $2,170.79 for a 15-year loan.

During the housing boom, few refinancers even considered shorter-term mortgages, which made up just 10 percent of all refis in 2006. To the regret of many, they instead extracted as much bubble-era equity as they could by taking on larger mortgages with long repayment times, and often with risky characteristics.

?People were getting 30-year interest-only loans, and they were pulling out all the cash they could,? says Richard T. Cirelli, president of RTC Mortgage Corp., a Laguna Beach, Calif., loan brokerage.

?Now it?s just the opposite?they want shorter-term loans, and they?re strategizing to get the mortgage payoff to coincide with their retirement,? Cirelli says. ?We?re seeing 20-year loans, 15-year loans and even quite a few 10-year loans.?

Instead of cash-out loans, some borrowers are even putting cash in when they refinance, he said ? for example, to get their balances down to $417,000 for a one-unit property, the maximum amount at which the lowest interest rates are ava

via Low Mortgage Rates Attracting More Short-term Borrowers.

Tags: Prudential Georgia Realty

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