Posted November 13, 2013Tweet
The 15-year fixed rate mortgage is popular.
Last quarter, a growing number of U.S. households refinanced out of 30-year fixed rate mortgages, and into 15-year and 20-year ones. More refinancing households moved to shorter loan terms than during any quarter in 10 years.
Low mortgage rates are part of the reason. The HARP refinance program is the other.
According to Freddie Mac's quarterly Product Transition report, between July - September 2013, more than 2 of every 5 refinancing households with an existing 30-year fixed-rate mortgage elected to refinance into a 15-year or 20-year fixed rate loan.
The reading marks a 6 percentage point increase over the quarter prior.
The rush to ditch the 30-year loan makes sense. 15-year mortgage rates remain historically cheap as compared to their 30-year, fixed-rate mortgage counterpart.
Today's 15-year fixed rate mortgages are nearly doubly-discounted and savvy rate shoppers recognize great deals. At today's mortgage rates, the total interest paid to complete a 15-year loan is 65 percent less than a comparable 30-year loan.
Never in history have savings like this been possible.
The 15-year mortgage has been especially popular among users of the Home Affordable Refinance Program (HARP). HARP is the government's mortgage program for underwater homeowners.
Sometimes called "The Obama Refi", the HARP refinance gives homeowners whose homes have lost equity the ability to refinance without taking on new or additional private mortgage insurance (PMI) coverage.
Via HARP, homeowners who put 10% down at the time of purchase can refinance into a loan with "10% down PMI", regardless of whether their home is currently underwater. Similarly, homeowners who put 20% down at the time of purchase but ho no longer have that equity can HARP refinance without an accompanying PMI payment.
HARP was initially launched as part of the American Reinvestment and Recovery Act of 2009 and it's been used more by more than 2.9 million U.S. households. Among these refinances, patterns have emerged.
One such pattern links existing home equity to loan term. The more equity in a refinanced home, the more likely the homeowner will refinance into a 15-year loan term.
As HARP 2.0 expands to reach more homeowners -- possibly in the form of HARP 3.0 -- the share of U.S. households refinancing to 15-year loans may increase.
Today's interest rate spread between the 15-year and 30-year mortgages is near historical highs. Take a look at today's rates and compare them to your budget. With zero-closing cost loans still available, the amount of money you can save can be huge.
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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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