Why You Should Consider a Shorter Mortgage Record --- Low Rates Spur a Switch To 15-Year Loans, a Good Place To Put Extra Cash in Down Market
WITH SOME MORTGAGE RATES at record lows, borrowers are starting to do something odd: They are agreeing to higher monthly payments.</br></br>An increasing number of affluent homeowners are swapping traditional 30-year mortgages for 15-year loans, which carry monthly payments that can be hundreds of dollars a month higher. In return, however, they're getting the lowest 15-year loan rates on record, and a chance to pay off their mortgages by the time their kids go to college or they retire. On top of that, 15-year mortgages carry far lower interest expense over the life of the loan. The shorter time frame can save a borrower more than $100,000 in total interest payments on a $200,000 loan.</br></br>The heightened interest in the shorter mortgages is yet another byproduct of the falling stock market. For homeowners capable of handling the higher monthly payments, the 15-year mortgages may present a more attractive use of extra cash than the market. In essence, they're choosing to pay off their debts rather than risking their money in the uncertain market or investing in low-yielding vehicles like savings accounts.</br></br>A year ago, "the last thing people wanted to do was pay more mortgage" each month, says Michael Menatian, president of Sanborn Corp., a West Hartford, Conn., lender. But now, he says, that has completely changed. "People are saying, `Where else am I going to put my money?' " Mr. Menatian says about a fourth of his refinance clients are opting for 15-year mortgages, compared with 10% last year.</br></br>It's easy to see why some borrowers might be tempted. Rates for a typical 15-year loan fell last week to a record low 5.93%, according to Freddie Mac. As recently as 1995, rates on 15-year loans were nearly 9.0%.