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Refinancing Consumers Sour On 15-Year Mortgages, Opt For 30 Years Instead

By Dan Green

Homeowners are ditching their 15-year fixed-rate mortgages at the fastest pace in a decade; current mortgage rates and the 5-day interest rate trend; and, with the year half-over, what experts say about the future of U.S. mortgage rates.

Homeowners Refinancing Out Of 15-Year Mortgages

Homeowners leaving their 15-year mortgages - Growella
Homeowners leaving their 15-year mortgages

A growing number of U.S. households have ditched their 15-year loans.

New data from Freddie Mac shows 37 percent of homeowners who refinanced 15-year fixed-rate mortgages during the year’s first quarter opted to replace their existing fifteen-year loan with a 30-year fixed-rate mortgage instead.

The figure marks a sharp increase from recent quarters and represents the highest percentage of refinancing homeowners switching out of 15-year loans since the start of the decade.

Rising home values may be a contributing factor.

Since 2012, national home values are up more than twenty percent with many markets returning 40 percent or more to local owners of homes. Home equity has built up and consumers are using cash-out refinances to convert their growing assets into money to be spent or invested.

Two-thirds of today’s refinances are cash-out mortgages.

A cash-out refinance does what its name infers — it takes cash out from your home. And, in doing so, cash-out loans increase the size of your mortgage. Payments go up.

One way to reduce the bite of a new, higher mortgage payment is to change the term of the underlying loan, lengthening from fifteen years to thirty years.

30-year mortgages get paid back over a longer period of time and less money is due to the lender each month.

Overall, however, thirty-year loans require as much as sixty-five percent more interest to be paid to the lender which means that converting a 15-year mortgage to a thirty-year one could be a money-losing proposition.

Refinancing is a personal choice and there’s no best path to fit everyone. Make sure to talk with a loan officer for advice that meets your needs, and to get a live rate quote.

Here are today’s current mortgage rates.

Today’s Mortgage Rates & Interest Rate Trends

Current Mortgage Rates for July 02, 2018 - Growella
Current Mortgage Rates for July 02, 2018

Today’s mortgage rates are improving.

Interest rates are down for the seventh day out of the last nine, and pricing for 30-year fixed rate loans, 15-year fixed rate loans, and 5-year ARMs are now lower than they’ve been since May.

It’s a good time for renters to look at how much home they could afford to buy. Also, millions of homeowners are now in the money to refinance their loans into something more favorable.

FHA-backed homeowners should also consider refinancing from FHA to conventional to lower their monthly payments and get rid of FHA mortgage insurance for good.

For today’s mortgage rates:

Interest rates are not one-size-fits-all. There are more than a dozen factors that go into an actual mortgage rate quote and one of those factors is the lender with which you choose to work.

Different lenders quote different rates.

Talk to two or more lenders before locking a mortgage rate to find your preferred combination of rates, fees, and service. Shoppers who shop are shoppers who save.

Get An Instant Rate Quote

Click For Rates!

2019 Mortgage Rate Predictions

Predicting future mortgage rates - Growella
Predicting future mortgage rates

Mortgage rates can’t be predicted. That won’t stop us from trying, however.

We’re six months into the 2018 and many of the predictions from the start of the year appear off-track.

There were calls for rates to be the five-percent range. That’s not happening because of geopolitical uncertainty and a general softening in the U.S. economy’s inflationary pressures.

There were calls for rates to be in the three-percent range. That’s not happening, either, with the U.S. workforce still expanding and consumer spending holding strong.

So, we enter July with 30-year mortgage rates near 4.50 percent for borrowers who pay discount points; and, with 15-year mortgage rates just above 4.00 percent.

And, while we can’t know what rates will do between now and the start of 2019, there are two downward forces on mortgage rates that benefits home buyers and households planning a refinance.

The first is competition among lenders, which has heightened. Lenders are fighting harder for new business and that helps consumers to access the best mortgage rates possible.

Consumers who talk with two lenders instead of one save $2,000, statistically. Consumers who talk to three or more lenders save even more.

And, the second reason why rates are pressured downward is because of technology.

With better software and analytics, lenders now process, approve, and fund mortgage loans more quickly than during anytime in history.

Faster closings means consumers can make use of shorter rate locks, which grants them lower rates; a 30-day rate lock is less expensive than a 45-day lock.

We can’t know what mortgage rates will do over the next six months, but we know that rates are favorable today, in general. If your plans include buying or refinancing a home, connect with a mortgage lender and get today’s rates.

Written by Dan Green

Dan Green is a personal finance expert and the founder of Growella. His expertise has been cited by The Wall Street, NPR, and CNBC; and, his advice has helped millions of people make better choices with their money. Dan hosts the mortgage news show "The Mortgage Minute-and-a-Half" three times weekly on YouTube.

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