Most American homeowners are probably familiar with Freddie Mac. This public company is sponsored by the government as a way to make mortgages available to more people. As well as first mortgages, the organization also deals with refinance mortgages. They have kept statistics for years about the types of refinance mortgage products that are most popular today. It might be helpful to learn what other people are doing in order to make a good decision for yourself.
Popular Refinance Mortgage Products
Thirty-year mortgages have always been a popular choice for first mortgages. The length of the term helps keep payments reasonable. When people replace this original mortgage with a new one, they may or may not decide to take out a similar loan than the one that they had before.
These are some recent Freddie Mac statistics about the percentages of borrowers who had a 30-year loan and switched to different loan products or stayed with a 30-year loan:
- Fixed 30-year: 56.4 percent
- Fixed 20-year: 11.8 percent
- Fixed 10-year: 30.4 percent
People who refinance have already had their previous mortgage for an average of seven years. It might be surprising that over half of these people decided to add another 30 years to their term by refinancing into a 30-year mortgage. Even though interest rates tend to be higher for longer terms, the payments still be smaller because they are spread out for so long.
It seems fair to conclude that many people who decide to refinance don’t care that much about how long they will have to make payments in the future. These homeowners may be more interested in using refinancing as a way to cash out on their home equity or simply lower their payments. Still, lenders allow borrowers to make extra payments, so some of these people may not actually intend to have their mortgage that long. They may just want to keep their options open.
Should You Refinance With a 30-Year Loan?
The right solution really depends upon the reason that you want to refinance. If you are more concerned about simply finding a loan that will lower your monthly payments, a 30-year loan might be a great choice. If you hope to use your new mortgage to cash out on some of your home equity, a longer term might also be a good choice. If you want to pay your loan off faster and enjoy the lowest interest rates, you might consider a shorter term.