Borrowers choosing shorter terms, eye early pay-off

More borrowers are shortening their mortgage terms and are considering paying off their mortgage sooner.

Record low interest rates have allowed more borrowers to refinance their loans from 30 years to 15- or 20-year terms.

A recent Freddie Mac report shows that 31 percent of recent refinancers shortened their loan terms, which is the second highest level since 2002.

“Historically low rates and an average of three-quarters of a percentage point difference between 30- and 15-year mortgage fixed-rate mortgages are important drivers for moving to a shorter term,” said Frank Nothaft, Freddie Mac’s chief economist.

Fifteen-year fixed-rate mortgages reached a new record low last week, averaging 2.97 percent, according to Freddie Mac’s weekly mortgage market survey. The 30-year fixed-rate mortgage also reached a new record low last week, averaging 3.75 percent.

“People are taking control of their own equity – they’re paying it down quickly,” says Michael McHugh, president of the Empire State Mortgage Bankers Association.