Monday, October 4, 2010

15 Year Mortgages Becoming More Popular

MortgageImage by Rev Dan Catt via Flickr
A trend is starting of more people who are refinancing choosing to have a 15 year mortgage. CoreLogic, a provider of financial, property and consumer information, states this is a rising trend (CoreLogic.com). 
 
The data reveals in 2007 9.4% of refinanced mortgages were on a 15 year note. In 2009 it rose to 18.5%. This year from January to June, 26% of refinanced mortgages were 15 year. Why is this happening? 
 
With the interest on a 15 year mortgage as low as 3.86% the higher payment is becoming more affordable. The public push back on rising government debt and fiscal irresponsibility of the government is making people reevaluate their own situations. People are rethinking the sense of having a longer term on their mortgage, the money they are paying for this lower payment on a 30 year note. 
 
With the economy in the drink, their investments going nowhere and the insecurity of the times a paid of house is something tangible that people can get a sense of security from. Seeing an interest rate with a "3" is very tempting. 
 
People have awaken from their sleep. They are more aware of where their money is going. A 30 year mortgage is not so appealing anymore. The mac-mansion is being put on the shelf as a disaster financially. People used to take out the biggest mortgage they could and use the rest of their money to invest. But now people see debt as drag on their budget and psyche. Being debt free and financially secure is the rising trend. 
 
The new young homeowner sometimes can't make the payments of a 15 note work in their budget. They have to go for the 30 year note. I remember, my own experience was I had to get the 30 year note and to make it worse it had a negative amortization. It was stupid, but I didn't know better at the time. 
 
If you have a 30 year mortgage and want to go to a 15 year but can't refinance for whatever reason here's a workaround. Pay the 30 year note as if it was a 15 year. Find out, through the many financial calculators on the Internet, take your mortgage balance with your interest rate and plug it in for a 15 year mortgage. The result will be the 15 year payment, take the 15 year payment subtract the 30 year payment, this is the amount you add to the principle amount every month. With this new payment your mortgage will be payed off in 15 years. 
 
If you have a crisis you can stop the extra principle payment and continue when you can. Any amount of extra principle will pay off your mortgage sooner. If you have a mortgage of $200,000 at 4.5% for 30 years even a extra $100 per month will shave 5 years off your 30 year mortgage and save you $31,700 in interest.


2 comments:

  1. With interest rates at historic lows, 15 year mortgages are about the same monthly payment that 30 year mortgages were at 5 years ago.

    ReplyDelete
  2. Absolutely, 15 year mortgages are becoming more popular...at least based on the increased chatter I have heard regarding them of late. It makes, sense, with the really low rates (compared to historical rates) and the increased awareness of the benefits of minimizing debt.

    These days, people have been looking at debt in a more conservative way, thinking more of financial freedom and avoiding debt vs appreciation of their home's value.

    ReplyDelete

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