Lured by rock-bottom interest rates, a growing share of borrowers looking to refinance are opting for a 15-year mortgage instead of the traditional 30-year one.Fifteen-year fixed-rate loans accounted for nearly one in five refinance applications in October, according to the Mortgage Bankers Association. That’s up from 9.1% a year earlier and 7.5% in October 2007. The October data are the most recent available.The move to shorter-term loans comes as rates on these mortgages have dropped to near historical lows. Rates on 15-year fixed-rate conforming mortgages averaged 4.46% last week, according to HSH Associates in Pompton Plains, N.J., well below their recent high of 5.25% in mid-June. Rates on 30-year fixed-rate conforming loans averaged 4.99%, or about half a percentage point higher.To be sure, 15-year loans have their disadvantages. Even with the low rates, monthly payments can be substantially higher because the loan must be paid off over a shorter term. Borrowers are locked into the higher payments for the life of the mortgage.
By Ruth Simon, Dec. 16, 2009 WSJ