The new conventional “Flexible Term Mortgage Program” is a terrific option for homeowners and new home buyers, as it allows a borrower to choose their own term on a conventional fixed-rate mortgage on a refinance or a home purchase. Until recently, a borrower could only choose a 15, 20 or 30-year fixed term. Now a borrower can choose any term they want between 8 and 30 years. If you have been paying on your 30 year mortgage for 6 years and would like to refinance the remaining 24 years, or you have a goal of retiring in 18 years and would like to be mortgage free for retirement, you can now choose your own term on your fixed-rate mortgage.
Choose Your Own Fixed Mortgage Term
Fannie Mae’s new conventional “Flexible Term Mortgage” program is a great option for new buyers and current homeowners. And the lower the term of the loan, the better the rate.
For example, if you have already been paying on your mortgage for 6 years, and you do not to start paying interest all over again on a 30 year loan, you can now choose a 24-year mortgage so you stay on track to pay off your mortgage early.
Having the ability to pick your own loan term is also a great option for a borrower who wants to be mortgage free for retirement, and knows the age they want to retire at.
For example, let’s say you have a 30 year mortgage and you have been paying on the loan for 4 years, which leaves 26 years left. But you have a goal of retiring in 18 years. You can now refinance your loan into a 18 year fixed rate mortgage term, so you can be on track to be mortgage free for retirement in 18 years.
Borrowers Switching to Shorter Term Mortgages
As you can see below in the chart, many homeowners with 30 year mortgages are switching to shorter terms mortgages, as rates on shorter term loans are still very low right now.
With conventional financing, the shorter the term of the loan, the lower the rate.
In fact, over the past couple of quarters alone, 46% of refinancing households ditched their existing 30-year fixed rate loan in favor of a shorter-termed 15-year or 20-year loan. It’s the quickest exodus rate from the 30-year fixed rate mortgage in history.
At today’s rates, homeowners with a 15-year loan term will pay 64% less mortgage interest than with a comparable 30-year loan, as a 15-year mortgage requires just $28,000 of mortgage interest per $100,000 borrowed. Whereas 30-year loans pay $81,000 per hundred-thousand dollars borrowed.
As the payment on a 15 year mortgage is may be too expensive for some borrowers to pay each month, a 20 year or 25 year fixed is also a great way to save interest over the term of a loan, as a 25 and 20 year payment is more affordable. We can even help homeowners refinance into a 27 or 23 year fixed.
If you like to see if a shorter term mortgage would be a good fit for you, just let me know and I can run the numbers for you.
If you have any questions about any of the information above, or you would like to get approved for financing or need a free rate quote, please feel free to contact me directly at 858-442-2686.
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