Loans Expert

Homeowners who refinanced during the fourth quarter “overwhelmingly” chose fixed-rate loans, regardless of whether their original loan had a fixed or adjusted rate, and shorter-term mortgages gained some favor, Freddie Mac (FRE) said.

More than 95% of refinanced loans during the quarter were fixed-rate, as interest rates on such mortgages fell to record lows in the 39-year history of Freddie’s Primary Mortgage Survey.

Thirty-year loans are still the preference for new mortgages, but Freddie Chief Economist Frank Nothaft noted that “many borrowers” are choosing shorter- term mortgages–15 or 20 years–instead of 30 as they look to pay down their balances faster. Since the global recession hit, consumers have paid down debt in general at higher-than-usual rates.

The interest rate issue is the main problem when one wants to refinance a home loan. This is because the costs associated with home loans are high and thus, a single point raise on the interest rate can cost thousands of dollars. There are different reasons why one may want to refinance but the interest rate is always an important variable.

When considering refinancing you have to know exactly if the loan exchange will serve the purpose that you have in mind. Thus, in order to know whether you will be saving money on the overall life of the loan or if your monthly payments will decrease, you need to compare the loan terms of the loan to be refinanced with the new loan conditions.