It seems more and more people are using the low-interest-rate environment to take out or switch to 15-year mortgages, allowing people to pay off their Seaport condos or Beacon Hill home earlier and to build up equity faster. The trend is the opposite of what normally happens when interest rates fall.
Though there are great arguments on both sides about whether it’s a smart financial move to go with a 15-year mortgage or a 30-year mortgage, we think there are a few other psychological reasons at work these days: a.) People no longer trust the stock markets, so they figure they might as well put their money to better use somewhere else. b.) People don’t know what the future holds and want those mortgages paid off ASAP, i.e. at least they’ll own something if economic armageddon happens.
U.S. average rates on long-term mortgages fell this week, with historically low levels continuing to fuel demand for homes.
Mortgage buyer Freddie Mac reported Thursday that the average rate on the 30-year home loan declined to 2.91% from 2.99% last week. By contrast, the rate averaged 3.58% a year ago.
The average rate on the 15-year fixed-rate mortgage fell to 2.46% from 2.54% last week.
Housing demand continues as one of few bright spots in the pandemic-hobbled economy, especially for prospective buyers considering a first-time purchase. The trend may even extend strong sales of homes, which has already carried over from spring into summer, further into the fall, Freddie Mac says.
Homeowners looking toward refinancing mortgages gained a reprieve this week on a new fee approved by the federal regulator of Freddie and its larger government-controlled sibling Fannie Mae. The fee for lenders, equivalent to half a percent of the total home loan, was delayed from taking effect on Sept. 1 to Dec. 1.
The fee is intended to provide a cushion for Fannie and Freddie against possible mortgage defaults in the severe economic downturn. It’s likely to be passed on to homeowners and is expected to cost an average of around $1,400 — prompting objections by mortgage lenders and consumer advocates.