Refinance Frenzy : Nearly 40% Abandon 30-Year Fixed Rate Mortgage
More U.S. homeowners are choosing to shorten up their loan terms.
From Montgomery County, Maryland to Orange County, California, huge numbers of refinancing households are ditching their respective 30-year fixed rate loans in favor the lower interest rates and quicker payoffs that come with the 20-year and 15-year fixed rate mortgages.
Can You Afford A Shorter Mortgage Term?
In the first quarter of 2012, nearly 2 in 5 refinancing households left the confines of a 30-year fixed rate mortgage for something "shorter" -- four times the pace of just 4 years.
It's not hard to see why. As 30-year fixed rate mortgage rates have dropped to new depths this year, so have comparable conforming 15-year fixed rate mortgages. The 30-year fixed rate mortgage averaged 3.92% last quarter for borrowers willing to pay discount points and closing costs.
The 15-year fixed rate mortgage averaged 3.18%. That's low.
To want the 15-year mortgage, though, you'll have to want its payment, too. Because the 15-year mortgage pays down in half the time as 30-year mortgage, mortgage payments are higher.
At today's mortgage rates, a 15-year loan's mortgage payment is 48% higher as compared to a similar 30-year loan. In the short-term, bigger payments can stress a household budget. Over the long-term, however, the amount of money saved is palpable.
For every $100,000 borrowed, you'll save nearly $44,000 over the long-term in mortgage interest costs. Plus, you'll be mortgage-free in half the time.
See Today's 15-Year Fixed Rate Mortgage Rates
Switching to a 15-year fixed rate mortgage -- or a 20-year one -- is a popular choice these days, but one you should consider carefully. Although you may qualify at today's mortgage rates, once you commit to a shorter-term loan, you're stuck with its payments until you refinance or pay the loan off. If "times get tough", you can't fall back on the 30-year fixed without a refinance.
See what your mortgage payments would look like with a 15-year fixed rate mortgage, or a 20-year.