Current mortgage rates are affecting U.S. refinance behaviors.
Last quarter, 44% of refinancing households ditched their existing 30-year fixed rate loan in favor of a shorter-termed 15-year or 20-year loan. It's the second-quickest exodus from the 30-year fixed rate mortgage in recorded history, following only the forty-six percent transition rate from the quarter prior.
Low mortgage rates have been a catalyst.
At today's mortgage rates, homeowners refinancing to a 15-year loan term pay 65% less mortgage interest over time as compared to homeowners with a 30-year loan; with some getting access to mortgage rates and APR in the 2s.
It's an excellent time to refinance to a shorter-termed loan.
According to Freddie Mac's quarterly Product Transition report, between July - September 2014, nearly half of refinancing households with an existing 30-year fixed-rate mortgage abandoned that product, and refinanced into a 15-year or 20-year fixed rate loan.
The rush to leave the 30-year loan is a sensible one. Mortgage rates for 15-year loans look downright cheap right now, by comparison.
During the 12-year period from 2000-2012, mortgage rates for a 15-year fixed rate loan were 52 basis points (0.52%) below the comparable 30-year loan. By contrast, last quarter, 15-year rates were cheaper by 88 basis points (0.88%) -- a seventy percent increase on its historical discount.
Savvy homeowners see opportunity.
At today's rates, 15-year mortgages require homeowners to pay 65% less mortgage interest over the life of a loan as compared to a 30-year product. On a $350,000 loan, that's equal to savings of $170,000; money which can be used for funding a retirement, paying for college(s), or for any other imaginable purpose.
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 private mortgage insurance (PMI) coverage.
Via HARP, homeowners who had put 20% down at the time of purchase are able to refinance with no PMI required, regardless of their current LTV. Homeowners who had put 10% down are able to refinance without an increase to their existing PMI coverage.
HARP gives homeowners access to today's low mortgage rates and there are an estimated 667,000 U.S. households "in the money" for a HARP 2. The government has published the eligible HARP households by state.
Maybe your home is one of them.
Regardless of your property's current value, you may be eligible to refinance. More than 3.2 million U.S. homeowners have used the HARP program already.
For homeowners refinancing from a 30-year fixed rate mortgage into another 30-year fixed, today's HARP refinances result in a 30% drop or more on monthly payments. For homes with larger loan sizes, savings amounts to thousands of dollars per year.
Among HARP households, though, it's been popular to switch from 30-year loans into something shorter. The more equity that a homeowner has in its home, data shows, 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.
Mortgage rates remain low for all loan types, however.
According to Freddie Mac's weekly Primary Mortgage Market Survey (PMMS), 30- and 15-year fixed rate mortgage rates are at their lowest levels since the start of 2014; and approaching the lows of June 2013.
15-year mortgages remain popular and "on sale". See how much money you can save with a refinance to lower rates. The amount of interest you'll save long-term may be monstrous.
Get an instant mortgage rate quote now. Rates are available at no cost, with no social security number required to get started, and with no obligation to proceed.
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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2015 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.