Mortgage-market divide widens as 15-year refis increaseby Tim Manni
It seems that now more than ever, the mortgage and housing markets are made up of the haves and have nots. While the opportunities to recast and pay down debt are plentiful for one audience (the haves), the options for the other audience (the have nots) are few and far between.
According to new data released from CoreLogic, the number of borrowers who are refinancing to shorter-term mortgages is increasing:
Between January and June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term.
Why are 15-year refis increasing? Simple: low mortgage rates. “We almost always see an upswing in 15-year refinances when mortgage rates are low,” said HSH Vice President Keith Gumbinger. The unstable housing and job markets, a lack of viable investment opportunities and the desire to rebuild lost equity have also fostered the mindset in many that I had better pay this house off as quickly as possible. At least this year, according to CoreLogic, more and more homeowners are showing a willingness to pay off their mortgage debt as soon as possible, and refinancing to a shorter term — such as a 15-year mortgage — is one way to do that.
Who are these borrowers?
In general, [Bob Walters, chief economist at online lender Quicken Loans] says, those who choose 15-year fixed-rate mortgages are older and have more equity and less debt than other folks. They also earn higher incomes and don’t have some of the added expenses that younger homeowners typically do.
“People who are taking these loans are financially stable and can afford the payments, but at the same time are planning on staying in their home for an extended period of time,” [Leif Thomsen, chief executive of Mortgage Master] says.
The have nots
In some ways, this trend seems to be at odds with other recent studies that suggest a growing number of borrowers are choosing to prioritize other forms of debt — mainly credit cards — over their monthly mortgage payments. These are borrowers who, for one reason or another, are behind on their mortgage payments; perhaps a reduction in income or job loss has prevented them from making their mortgage payments on time. When tasked with the decision of whether to commit money to the mortgage or to put food on the table, they often choose the latter. “You cannot buy groceries with your house,” said Sean Reardon of TransUnion.
This trend can be attributed to several things. One, with all the assistance being offered to mortgage borrowers today and with so many homeowners in financial trouble, the stigma surrounding foreclosures and late mortgage payments has lifted appreciably. Also, it’s reasonable to assume that the borrowers who have decided to forgo paying their mortgage debt on time have already realized that they don’t qualify for the mortgage assistance that’s available today.
The great divide
While one group of borrowers is able to accelerate their mortgage payments to a 15-year term, another is unable to afford the payments on their 30-year term. If a functioning middle class is so important to society, isn’t it equally important for the mortgage market, too?