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Posted July 17, 2015
in Mortgage Strategy

Refinance Trends: What Are Today’s Most Popular Refi Loans?

Into what loans do homeowners with 30-year fixed rate mortgages refinance?

Refinance Volume Hits Multi-Year High

Current mortgage rates are low.

Since the start of 2014, mortgage rates have been down. Conventional 30-year fixed rates loans have dropped approximately 50 basis points (0.50%) and 15-year fixed-rate loans have dropped close to 30 basis points (0.30%).

Mortgage rates for refinances remain cheap and more than 6 million U.S. homeowners are potentially eligible to refinance. There is ample opportunity to take advantage of today's low rates.

Up to 2 million households are in the money, too.

"In the money" means that your current mortgage rate is more than 150 basis points (1.50%) above the current market rate; and you have a balance of $50,000 with at least 10 years remaining on your loan.

The typical refinancing household now saves more than 30% on their home loan annually.

Click to see today's rates (Nov 25th, 2015).

Homeowners Refinance Away From 30-Year Loan

With current mortgage rates lows, U.S. refinance behaviors are affected.

Last quarter, 38% of refinancing households refinanced to get rid of their existing 30-year fixed rate loan; instead, choosing a loan of shorter-term including the 15-year fixed-rate loan, or the 20-year fixed-rate loan.

This rate of exodus remains among the highest in recorded history.

Low interest rates are a catalyst.

As a result of today's mortgage rates, homeowners who refinance from a 30-year loan to a 15-year end up paying 65% less mortgage interest over time; and, many are getting access to the lowest APR and rates of their lifetime.

It's an excellent time to refinance to a shorter-termed loan.

15-Year Loans Reduce Mortgage Costs 65%

According to Freddie Mac's quarterly Product Transition report, between January - March 2015, nearly two-in-five refinancing households with an existing 30-year fixed-rate mortgage chose to abandon that product, refinancing into a 15-year or 20-year fixed rate loan instead.

The rush to get rid of 30-year loans is a sensible one. 15-year rates are downright cheap right now; and many homeowners like the idea of paying off their homes 15-year faster.

Plus, as compared to recent history, the spoils for choosing a 15-year loan are huge.

Consider that during the 12-year period between 2000-2012, mortgage rates for a 15-year fixed rate loan were 52 basis points (0.52%) below a comparable 30-year loan.

By comparison, 15-year rates were 70 basis points (0.70%) cheaper through the first three months of 2015.

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.

Click to see today's rates (Nov 25th, 2015).

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 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 622,000 U.S. households eligible for a HARP 2 refinance. 

Maybe your home is one of them. 

Regardless of your property's current value, you may be eligible to refinance. More than 3.3 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 in February, based on their existing home loan-to-value.

  • Current LTV 80-105: 36% refinanced into a 15- or 20-year loan
  • Current LTV 105-125: 29%¬†refinanced into¬†a 15- or 20-year loan
  • Current LTV 125+: 23%¬†refinanced¬†into¬†a 15- or 20-year loan

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 near their lowest levels of the year; and within striking distance of the lowest rates of all-time, set in May 2013.

Get A Live Rate Quote Now

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.

Click to see today's rates (Nov 25th, 2015).

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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