Are Mortgage Applicants Forced Into 30-Year Fixed Rate Mortgages?

In most countries, 30-year fixed rate loans are in the minority. Here in the United States, though, the majority of residential mortgages are fixed rate loans with an amortization spread over 30 years.

This may be changing.

Customized mortgages aren’t new but industry experts say they are seeing more borrowers opt for fixed-rate loans with terms other than the standard 30 or 15 years, especially when it comes to refinancings.

Last year, nearly 17% of all refinanced mortgages were with “other length” fixed-rate loans, according to the Mortgage Bankers Association, which noted that in August, September and October, the share had gone up to 20%.

That is still not much, but it might indicate a trend.

Most of those “other length” loans were in 20-year mortgages, though loans are also available for 10, 25 and 40 years -- even for “oddball” terms like 23 or 12 years.

The shorter terms are especially valuable to people refinancing after paying down their 30-year mortgage for five or seven years. If they take a 20-year mortgage, they can reduce their interest rate -- and the term -- and possibly even get a monthly payment the same or slightly lower than before. The 20-year mortgage is becoming so prevalent, banks are starting to sell them off to investors or in the secondary mortgage market.

Many customers seeking to refinance ask for odd loan terms to avoid increasing the length of their repayment schedule.

That being said, one of the major drawbacks of an odd term is that it is not standard, and standardized mortgage products tend to drive the securities market, which also is influenced by investor appetite. Until investors or portfolio lenders accept other terms in full, the use of non-standard maturities will be limited.