Homeowners evaluating 20 year fixed rate mortgages

With homeowners refinancing lowering their interest, many of the borrowers are reducing the term of the loans.

The Mortgage Bankers Association(MBA) report, 30 year fixed rate mortgages are still the most popular loan term for both and refinance customers, but 20 year mortgages are becoming increasing popular, especially among refinancers.  

"Twenty-year fixed-rate loans are the third most popular mortgage product, behind 30 and 15-year fixed-rate loans, followed by 10 and 25-year mortgages," says Matthew Robinson, senior public affairs specialist with the MBA.

The popularity of these loans, especially among refinancers, has grown enormously in the last year alone. The MBA says that other-term loans represented more than 15 percent of all refinance applications in August 2012 (latest data available), an increase of 23.25 percent compared to last year.  

Other-term loans represented just 1.91 percent of purchase applications in August 2012, but still an increase of 13.45 percent compared to August 2011.

Qualification standards for a 20 year mortgage are the same as for a 30 year, or 15 year fixed rate loan. The only major difference is that a borrowers income must be sufficient to cover the higher payment.  

Home prices, in terms of actual monthly mortgage payments made by home owners, are cheaper today than they have been for more than 25 years, according to a recent analysis of Case-Shiller home values and mortgage rates by the Department of Numbers web site.

The site calculated the cost of a actual monthly payments on a 30-year mortgage at prevailing historic mortgage rates to finance the purchase of a home at Case-Shiller's media price levels since the series began in the late 1980s.

Even though real house prices peaked at the beginning of 2006 and are now back to early 1999 (and before that mid 1990) levels, today's record low mortgage rates make monthly mortgage payments lower today than they have been since the Case-Shiller index came into being.

Posted on December 18, 2012 .