Dave Richards wants to retire in 15 years — and he doesn't want to still be paying his mortgage when he starts taking it easy.
So last month the 43-year-old Thousand Oaks, Calif., resident, taking advantage of record low interest rates, refinanced his 30-year mortgage that had 25 years remaining with a 15-year loan.
"The payment is more per month, but I'm comfortable with that," said Richards, president of a Westlake Village, Calif., company that arranges sales of small businesses. "It's worth it to be able to retire at 58 with a zero mortgage."
As homeowners rush to refinance their mortgages, an increasing number are opting for a 15-year term. They're not only moving up the date on which they'll own their property, but also benefiting from a lower rate than those available on 30-year loans.
Last week, the rates offered by lenders on 15-year fixed-rate loans averaged 3.82 percent, Freddie Mac reported. That was unchanged from the prior week, the lowest in the 19 years that the mortgage giant has tracked such loans.
The average rate on 30-year fixed-rate loans was also unchanged at 4.37 percent, according to Freddie's survey.
For many people, another reason to choose a 15-year term is that they've lost confidence in their other investments, such as stocks and bonds, said mortgage banker Fred Arnold, who refinanced Richards' loan.
"If their retirement income and savings fall short, they at least can count on their mortgage being paid off earlier," he said.
Baby boomers nearing retirement, who may recall 16 percent mortgage rates in the early 1980s, are especially drawn to the 15-year loans, said Brad Blackwell, national sales manager at Wells Fargo Home Mortgage.
"They're thinking … 'I like the fact that there's a '3' at the front of the interest rate,' " Blackwell said.
Of the mortgage applications received these days by Wells Fargo, 22 percent are for 15-year loans. That's up from 15 percent late last year. With home sales depressed, the vast majority of mortgages being taken out these days are replacing existing loans, not financing a home purchase.
The recent boom in refinancing follows an even larger surge in 2009 that began when rates for 30-year loans dipped below 5 percent.
These days, lenders say, many borrowers are also choosing to pay down their balances when they refinance.
Some people take that step, increasing their home equity, because they won't qualify for a mortgage otherwise. For others, a higher level of equity can mean a lower interest rate, especially if reducing the loan amount means not needing a "jumbo" mortgage. Jumbo loans carry higher rates because Fannie and Freddie won't buy them.
According to Freddie Mac, 22 percent of homeowners who refinanced their mortgages in the second quarter lowered their principal balance by paying cash at the closing — the third-highest "cash-in" level since Freddie Mac began tracking it in 1985.
Marsha Lenyk, president of Award Mortgage in San Diego, said one of her refinancers brought $125,000 in cash when he refinanced into a 15-year loan. Doing so meant he could pay off his home-equity credit line as well as the 30-year primary mortgage.
The borrower wanted to rid himself of the credit line debt because it had a variable interest rate that he knew would eventually rise, she said.