Short-term mortgage loans and credit decisions incite borrowers in third quarter

Perhaps in response to a resurgence of fixed-rate offers on short-term mortgages, consumers are trending toward 15- and 20-year loans to finance home purchases, according to the most recent Freddie Mac Quarterly Product Transition Report. Fixed-rate loans accounted for more than 95 percent of refinance loans during the third quarter. Of borrowers who paid off a 30-year fixed-rate loan, 40 percent chose a 15- or 20-year loan - the highest that figure has been since the second quarter of 2003. "Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third quarter," Frank Nothaft, vice president and chief economist at Freddie Mac. "For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term." The extension of the Home Affordable Refinance Program to 2013 has driven hundreds of thousands of borrowers to refinance their mortgages. The trend may also reflect recent shits in the housing sector, which has been one of the most troubled markets since the recession began. Some analysts have even projected that housing troubles will continue through the decade.