More borrowers refinance to shorter FRMs with higher monthly payments: CoreLogic
An increasing number people are choosing to pay off their mortgage loans in a shorter time period, according to data provided by CoreLogic. The data shows at 26% of all loans, or 252,600 loans, were refinanced to a 15-year fixed-rate mortgage (FRM), up from 18.5% in 2009 and 16.3% in 2008. In 2007, only 9.4% of loans were refinanced to a 15-year FRM. Refinancing to a shorter mortgage term means borrowers have higher monthly payments. That's the reason that most 2010 refinances, about 63.6%, were 30-year FRMs. But that's also the reason that the overwhelming majority of first-time loan purchases were on a 30-year FRM term basis. According to CoreLogic, 94.2% of originated mortgages were contracted with a 30-year FRM in 2010. This is a trend that has held constant over the past 3 years. In 2009, 95.3% of newly originated mortgages were 30-year FRMs, preceded by 94.3% in 2008 and 93.3% in 2007. On the contrary, 15-year FRMs represented only 5% of the newly originated loan market in 2010, 4% in 2009, 4.5% in 2008 and 3.6% in 2007, according to the CoreLogic data. Homeowners with first-time loan purchases are typically younger borrowers with more living expenses and less savings. Therefore, they usually take a longer fixed-rate mortgage to drive down the monthly cost of owning a home. Although no specific demographic is associated with 40-year FRMs, CoreLogic found that type of loan payment plan is losing popularity across both refinances and loan purchases. In 2007, 40-year FRMs account for 1.7% of total refinances and 2% of purchases. That dropped intensely in 2008 to 0.4% and 0.3%, respectively, and again in 2009 to 0.01% across both categories. 40-year FRMs account for 0.01% of loan purchases and 0.02% of refinances year-to-date. Write to Christine Ricciardi.