Fifteen-Year Mortgages Gaining Market Share

Are consumers actually turning over a new financial leaf, or are they just crazy-excited about getting a mortgage interest rate below three percent? That might be what you wonder now that more and more homeowners are refinancing into 15-year mortgage loans.

According to data company CoreLogic, 26 percent of all homeowners who refinanced in the first half of this year opted for a 15-year fixed-rate mortgage rather than the traditional 30-year loan. Compare that with 18.5 percent for all of 2009. And back in 2007 only 9.4 percent of borrowers chose that option.

Even though the average rate on a 15-year fixed was just 3.86 percent last week according to Freddie Mac, these mortgages can substantially increase the monthly mortgage payment. The Wall Street Journal gives this example:

With a 4.5% interest rate on a 30-year fixed-rate mortgage of $200,000, you would have a monthly payment of $1,015, including principal and interest, [Amy Crews Cutts, deputy chief economist for Freddie Mac] said. The monthly payment jumps to about $1,480 with a 4% interest rate on a 15-year fixed-rate loan.

While the monthly difference is too much perhaps for younger buyers, people with plenty of equity or plentiful income are starting to take advantage of the rock-bottom interest rates associated with these loans. The result is a huge savings in interest over the life of the loan.

The most amazing thing about this news is that it does represent a major financial thinking shift in our country. Just a few years ago, we were all running around trying to buy the biggest house possible and
cash out as much equity as possible for other things. Now people are actually keeping their money in their homes.

According to Bob Walters, chief economist at Quicken Loans, “We’re seeing a different view on debt than maybe we’ve seen in the past.” What borrowers are saying now is “I really want to pay this off. I’m going to bite the bullet and take the payment and work toward paying this down.”

Let’s hope this trend toward financial responsibility sticks around awhile.

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