Shorter Mortgage Terms are Becoming More Popular

Shorter Mortgage Terms are Becoming More Popular

Does a 15-year fixed rate mortgage sound better than a 30-year fixed rate mortgage? Sure it does! But can you qualify for a shorter term?

There was a time when a 30-year fixed rate mortgage was the only mortgage product that buyers would consider. If you wanted to get a 15-year fixed rate or worse yet, a 10-year fixed rate mortgage, you were looked at as “strange.”

But those days are changing.

According to a report in The Washington Post, more and more current homeowners are refinancing their homes into a 15-year or less mortgage term with numbers hovering around 3 percent. And those trends are substantiated by Frank Nothaft, the chief economist for Freddie Mac. The mortgage backer said that about 30 percent of the homeowners who refinanced their home in the last quarter chose to replace their 30-year fixed rate mortgage term with either a 15 or a 20 year fixed rate mortgage which offered much lower mortgage rates in addition to the shorter terms.

Smaller banks and institutions around the country are noticing a similar trend, but many of the refinancers through these community lending institutions are choosing even shorter terms. According to Jeff Lipes, the senior vice president of Family Choice Mortgage and the president of the Connecticut Mortgage Bankers Association, said many banks are offering mortgage rates of less than 3 percent with terms of seven years. These banks will also set up an automatic withdrawal from the borrower’s bank account to make everything even easier.

Of course, a shorter mortgage term isn’t for everybody. Take, for instance, a $150,000 mortgage loan on a 15-year fixed rate at 5.5 percent. If you have 13 years to go, you are going to pay about $1,225 per month. By the end of the term, you will pay a little over $191,000. If you reduce the term to a 7-year fixed rate at 3 percent interest, you will only pay about $166,500 by the end of the term. That will save you more than $21,000 in the long run. However, your monthly payments will need to be almost $2,000 per month. In addition to that, you will also have to qualify for the refinancing option, which is not always so easy with today’s stricter underwriting standards.

With the number of foreclosures and short sales on the market, it’s difficult to have your home appraised at an amount that will help you qualify for a refinance. And if you have less than 25 percent equity in your home, it is even more difficult. Low credit scores will also stand in your way.

Of course, it never hurts to check into refinancing your home at a shorter term and lower rate. Shop around to various lending institutions and see if you could qualify for a refinance so you can start preparing for a debt-free retirement today!

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