Increase in Mortgage Refinancing to Shorter Term Loans

The recent down trend in the interest rates have prompted many borrowers to refinance their long term loans to shorter term loans, in order to take advantage of some of the lowest mortgage rates in decades. The Federal Home Loan Mortgage Corporation, also known as Freddie Mac, recently disclosed that up to a third of the borrowers applying to refinance their 30-year loans had chosen to refinance to shorter term loans, ranging in 15- to 20-year loan repayment periods.

Freddie Mac also announced that interest rates on 15-year fixed loans had dropped around 0.75% on average since last year, which means that home owners choosing to refinance to a 15-year payment plan from a 30-year payment plan could achieve very substantial savings over the lifespan of their loan.

It has also been observed that many of the borrowers choosing to refinance their long term loans to a shorter term loans tend to be people approaching retirement. This can be attributed to the fact that they have perhaps realized that they are able to afford to repay their loans faster, and have decided to take advantage of the substantial savings that can be made through refinancing these loans.

Commenting on this segment of the market, Peter Iche, President of Carthage Federal Savings and Loan Association in Carthage, N.Y., said, “They realize that they can afford a heavier payment. They’re getting closer to retirement where they are willing to suck it up for a few years.” Iche also said that most of the customers usally manage to qualify when attempting to refinance to shorter-term loans, adding, “For the group of people that can afford to do it, it’s a good time to wrap things up.”