Over one-quarter of borrowers who refinanced their mortgage late
last year chose to shorten their loan term, a trend that was even
more pronounced in areas with lower home values.
According to a new report from
, 27 percent of homeowners who refinanced their mortgage in the
fourth quarter of 2012 chose to accelerate their payment schedule
compared to their old mortgage. Only 4 percent chose a longer loan
Of those refinancing from a 30-year fixed-rate mortgage, 19
percent opted for a 15-year fixed-rate loan, while 11 percent chose
a 20-year fixed rate mortgage, with nearly all the rest choosing to
stay with a 30-year fixed-rate mortgage. Only 1 percent chose to go
with an ARM.
Dallas, Detroit lean toward shorter loan terms
Not surprisingly, homeowners in lower-priced housing markets
were more likely to choose a shorter loan term than those in
higher-priced ones. For the year, 43 percent of those who
refinanced in the Dallas area opted to shorten their mortgage term,
as did 38 percent of those refinancing in the Detroit market.
Meanwhile, only 14 percent did so in the high-priced San Francisco
market and only 16 percent chose shorter terms when refinancing in
the Los Angeles area.
"Borrowers with smaller loan balances can shorten their loan
term when refinancing with smaller dollar increases in their
monthly payment than borrowers with large loan balances," said
Frank Nothaft, Freddie Mac chief economist. "That's an important
reason why a larger percent of borrowers in a low housing cost
market shorten their term when compared to borrowers in very high
Cash-out refis dwindle
Cash-out refinancing, where a homeowner borrowers against their
home equity in order to take money out of the transaction when
refinancing, continues to decline in popularity. Only 16 percent of
all mortgage refinances were cash-out in the fourth quarter of
2012, down from 30 percent as recently as early 2010 and almost 90
percent just before the housing bubble burst in 2006.
Borrowers took out only $8 billion doing cash-out refinances in
the fourth quarter of 2012, compared to nearly $100 billion at the
peak of the market in the second quarter of 2006
First published on MortgageLoan.com at: