Trend alert: Homeowners shortening loan terms
Posted on Monday, June 4, 2012 at 7:41:10 PM
Due to low mortgage interest rates, more homeowners are refinancing their home to reduce mortgage payoff times.
According to Freddie Mac, an estimated 79 percent of homeowners who refinanced their mortgages either maintained or reduced the loan amount of their principle balance in the first quarter of 2012. Almost a third of mortgage holders who refinanced cut the duration of their mortgages by 10 to 15 years. Lenders have not witnessed such a high percentage of decreasing loan length since 2002, when 35 percent of homeowners took out shorter-term loans.
"The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during March, with 30-year product averaging 3.95 percent and 15-year averaging 3.20 percent that month, according to our Primary Mortgage Market Survey," said Frank Nothaft, Freddie Mac’s chief economist.
The rise in affordable home financing options has allowed people to reduce the length of their loan terms, get out of debt faster.