15 Year Mortgages Gain Broad Appeal

By Mike Colpitts
Fixed 15-year mortgages, once thought to be the impossible for most homeowners to afford, are gaining ground in the current economy at couple never before seen levels. Homeowners refinancing homes and new home purchases are increasingly opting for the loans.

The mortgages cut the number of years it takes to pay off a home loan in half from the customary 30-year fixed rate mortgage, and gives mortgage holders more peace of mind in this volatile economy, especially with almost every homeowner at least knowing someone who has been foreclosed.

The move to refinance or take out the shorter term 15-year mortgage is being driven by a combination of factors, including the foreclosure crisis, concerns about the U.S. banking business in light of the Barclay’s Bank Libor rate fixing scandal and growing doubts over the integrity of lenders.

U.S. Treasury rates dropped to their lowest record in history Monday morning, hitting below 1.40% for the first time on the 10-year benchmark rate. The rates drop presents an inverse reaction for mortgage rates, which typically drop after Treasuries.

Average rates on the 15-year fixed have stayed below 3% since May. The rate averaged 2.83% last week, according to Freddie Mac. The 30-year loan hit another record milestone averaging 3.53%. Mortgage rates should drop again this week as Treasuries fall on uncertainty over the U.S. economy and broad worries over the European debt crisis.

Nearly one-out-of-three or 31% of those refinancing in the first quarter moved from 30-year fixed rate loans to 15-year mortgages, according to Freddie Mac’s latest data available.

“Refinance application volume increased last week to near peak levels for the year as mortgage rates dropped to a new low,” said Mortgage Bankers Association economist Mike Fratantoni.

Refinances accounted for 80.1% of U.S. mortgage applications during the week ending July 13, up from 77% the previous week. The adjustable-rate mortgage (ARM) share fell to 4.1% of applications.