Take out a home loan for less than 30 years and save big bucks

The headline below sure caught my eye when reading the newsletter I get from the  CALIFORNIA ASSOCIATION OF REALTORS® called C. A. R. Newsline. Freddie Mac has released the results of its third quarter 2013 quarterly refinance analysis, showing that borrowers are continuing to take advantage of near-record-low mortgage rates to lower their monthly payments, shorten their loan terms, and overwhelmingly choose the safety of long-term, fixed-rate mortgages.

Highlights from the report include:

• Of borrowers who refinanced during the third quarter of 2013, 37 percent shortened their loan term, up 5 percent from the previous quarter and the highest since 1992. Borrowers who kept the same term as the loan that they had paid off represented 59 percent, and only 4 percent chose to lengthen their loan term.
• The net dollars of home equity converted to cash as part of a refinance remained low compared with historical volumes. In the third quarter, an estimated $6.4 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages. The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.
• The average interest rate reduction was about 1.8 percentage points – a savings of approximately 30 percent. For all borrowers who refinanced during the third quarter, the estimated interest savings over the next 12 months will be about $6 billion.
• About 85 percent of those who refinanced their first-lien home mortgage maintained roughly the same loan amount or lowered their principal balance by paying in additional money at the closing table. That’s just shy of the 88 percent peak during the second quarter of 2012.
• More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been.

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