There’s a new trend among homeowners. Many are choosing to replace their long-term mortgages with short-term loans. More than one in three borrowers who refinanced opted for 15-year or 20-year mortgages at very low rates, said Frank Nothaft, chief economist for Freddie Mac in the company’s most recent quarterly survey.
Some banks are offering fixed rates for shorter-term loans at under 3 percent. Jeff Lipes, president of the Connecticut Mortgage Bankers Association and senior vice president of Family Choice Mortgage near Hartford, Conn., says that financing a home for 7 or 15 years makes sense for those who meet two criteria — they want to own their house faster, and they have the cash to support the bigger monthly payments. But save they will.
Consider a loan of $15,000 on a 15-year fixed at 5.5 percent with 13 years to go. Monthly principal and interest equal $1,225. In total, you will play $197,476. Refinanced over 7 years at 3 percent, monthly principal and interest come to $1,982, and the total note will be paid at $166,488. You save over $27,000 in interest fees.