Fifteen-Year Fixed Mortgages Gaining in Popularity

At a time when mortgage rates are dipping below five percent and adjustable-rate mortgages only account for only about five percent of the current mortgages, the 15-year fixed rate mortgage is gaining ground.

During the fourth quarter of 2009, about 95 percent of the people who refinanced their home choose a fixed-rate mortgage. While the 30-year fixed-rate mortgage is still the most popular option for home buyers and those refinancing, the 15-year fixed-rate mortgages are gaining ground, according to Freddie Mac. People are choosing the 15-year fixed-rate mortgages in an effort to pay less for their loan in the long run even if it means paying a higher mortgage payment each month for a shorter period of time.

Frank Nothaft, the VP and chief economist for Freddid Mac, said the new trend proves an earlier finding that a record number of mortgage borrowers are paying down their loans faster instead of “cashing out” when they refinance.

The low mortgage rates also had something to do with the record number of fixed-rate mortgages among those who refinanced. Many of these home owners were eligible for the lowest interest rate. As of last week, the rate for a 30-year fixed-rate mortgage was at 4.97 percent. For the 15-year fixed-rate, the interest stood at 4.34 percent. That rate is down from the previous week which was about 4.40 percent.

The popularity of the 15-year fixed-rate mortgage shows that people are getting smarter with their money. They are not only choosing the security and predictability of the fixed-rate mortgage, but they are also wanting to pay down their mortgage debt faster with a shorter term mortgage.

Some borrowers are also choosing to reduce their mortgage rates by “buying” points. You can reduce your interest rate by buying a point, which is equivalent to paying one percent of your mortgage loan value.

The recent upswings in the housing industry have sure been a great way to get more first-time home buyers into their first home. The lowered interest rates have also encouraged many current homeowners to refinance their mortgage loans with more favorable terms and save thousands of dollars over the term of the loan.

Other types of mortgages may have more favorable rates, but they are not as secure. The one-year adjustable-rate mortgage, for instance, averaged about 4.33 percent last week. That figure is an increase from the 4.22 percent rate the previous week. The 5/1 ARM was at 4.19 percent last week, dropping from 4.27 percent the week before.

Have you considered refinancing while the mortgage rates are so low? Who knows when this is going to happen again. Take advantage of this phenomenon if you can benefit from it.