November 15 2010 (Chris Moore)
Freddie Mac has reported that over 95 percent of all refinanced mortgages in the third quarter of 2010 were fixed rate loans. The 30 year fixed rate mortgage was the most preferred loan by those who had previously either had a 30 year mortgage before or had an adjustable rate mortgage.
The mortgage giant also reported that the shorter term, 15 year and 20 year fixed rate mortgages, were also gaining in popularity due to the record low mortgage rates.
“The share of borrowers shortening their amortization terms remains high,” said Frank Nothaft, Freddie Mac VP and chief economist, in a statement.
“There is always a discount for shorter terms but the payments are often about 50 percent higher than a 30-year amortizing payment and thus are unaffordable to many homeowners. What we’re seeing now is that the level of the 15-year payment is becoming more affordable to more borrowers.”
Many borrowers who had previously had a 30 year fixed or adjustable rate loans found that their payments were not significantly higher with a 15 year fixed rate mortgage at today’s low interest rates, which had not been so in the past. With the higher interest rates of the past, 15 year mortgages were usually 50 percent higher than a 30 year mortgage.
With today’s low rates for 15 year mortgages the payment may be slightly higher, but the long term savings by shortening their loan term amounts to a huge savings in interest over the life of the loan.
Freddie Mac also reported in its monthly ARM survey that year-to-date through September, the ARM share of applications was just six percent of all purchase applications and refinance applications, a far cry from the 80 plus percent range during the end of the housing boom.
Tags: freddie mac, 15 year fixed loan, 30 year fixed loan, ARM, adjustable rate mortgage, mortgage rates, interest rates, low mortgage rates, loan term