09Mar2014
Dan Green
Author
Dan Green
Filed Under
Mortgage Strategy

New Mortgage Data Shows Homeowners Abandoning The 30-Year Fixed Rate Mortgage

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Freddie Ma Quarterly Transition Survey : More than 30% of refinancing households with an existing 30-year mortgage switch into a shorter loan term

The 15-year fixed rate mortgage is popular.

Last quarter, nearly 40% of U.S. households refinanced out of an existing 30-year fixed rate mortgage in favor of shorter loan terms offered by 15-year and 20-year fixed-rate loans. Low mortgage rates have been a catalyst.

At today's rates, homeowners with a 15-year loan term pay 64% less mortgage interest than with a comparable 30-year loan.

Compare today's 15-year mortgage rates here.

You Can Pay 64% Less To Own Your Home

According to Freddie Mac's quarterly Product Transition report, between October - December 2013, 2 of every 5 refinancing households with an existing 30-year fixed-rate mortgage refinanced into a 15-year or 20-year fixed rate loan.

The reading marks a five percentage point dip from the quarter prior, but it remains the second-highest transition rate to shorter mortgage loan terms in eight calendar quarters.

The rush to leave the 30-year loan is a sensible one. As compared to the benchmark product, 15-year fixed rate mortgage rates are near their "cheapest" levels in history.

During the 12-year period from 2000-2012, 15-year fixed rate mortgage rates were 0.52 percentage points lower than comparable 30-year ones. In last year's 4th quarter, by contrast, 15-year rates were cheaper by 0.97 percentage points.

The discount on a 15-year loan is nearly twice its historical size. Savvy homeowners see opportunity.

At today's rates, 15-year mortgages require just $28,000 of mortgage interest per $100,000 borrowed. 30-year loans pay $81,000 per hundred-thousand dollars borrowed.

Never in history have savings like this been possible.

Click here to compare 30-year and 15-year mortgage rates.

HARP Homeowners Prefer 15-Year Loans

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 20% down at the time of purchase and can refinance into a loan with no PMI required, regardless of their home's LTV situation; or how far underwater the mortgage happens to be.

Similarly, homeowners who put 10% down at the time of purchase and who pay PMI can refinance into today's low rates without an increase to their PMI coverage. Lender-paid mortgage insurance or borrower-paid mortgage insurance -- the coverage remains the same.

This is especially helpful to homeowners in hard-hit cities such as Riverside, California and Tampa, Florida where the typical refinancing homeowner has lost more than 30% of home equity since purchase.

HARP was initially launched as part of the American Reinvestment and Recovery Act of 2009. It's been used more than 3 million times in its first five years.

Among these refinances, patterns have emerged. For example, the more equity that a homeowner has in the home to be refinanced, the more likely that homeowner will refinance into a 15- or 20-year loan term.

Here's how HARP homeowners refinanced last quarter, based on their existing home loan-to-value.

  • 80-105 LTV : 34% refinanced into a shorter-term mortgage 
  • 105-125 LTV : 22% refinanced into a shorter-term mortgage
  • 125+ LTV : 21% refinanced into a shorter-term mortgage 

Furthermore, as HARP 2.0 expands to reach more homeowners -- as HARP 3, perhaps -- the share of U.S. households refinancing into shorter-term such as the 15-year loans may increase.

Mortgage rates remain low for all loan types.

See Today's HARP Mortgage Rates

15-year mortgages remain popular and "on sale". See how much money you can save with a refinance to lower rates. Even if the shorter loan term makes your mortgage payment rise, the amount of interest you'll save over the long-term is monstrous.

Get a live rate quote and compare the pricing available via multiple mortgage products -- 30-year term or otherwise. With zero-closing cost loans still widely available, the time may be right to refinance. 

Get rates here. It's fast, it's free, and there's no obligation whatsoever.

Click here to compare mortgage rates.

About the Author

Dan Green is a mortgage market expert, providing over 10 years of direct-to-consumer advice. NMLS #1019791. You can also connect with Dan on Twitter and on Google+.

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