The refinancing boom may be cooling down, but the move to shorter mortgages —-- especially 10-year loans among pre-retirees — -- appears to be accelerating.
Some community banks say 10-year mortgages, once an insignificant niche option, are now accounting for increasingly large chunks of their business. For example, Rockville Bank in South Windsor, Conn., reports that 10-year loans represented a surprising one-fifth of its total residential mortgage originations in dollar terms last year.
Plus in a new survey released last week, Freddie Mac, the giant federal mortgage investor, found that 28 percent of all refinancings in the first quarter of 2013 involved shortening of terms. Among refinancingers with 30-year mortgages, nearly one-third switched to shorter-term replacement loans.
Though 15-year mortgages have been popular for years among homeowners who want to pay off their balances quickly, lenders say the 10-year loan —-- targeted directly at the demographic tsunami of baby boomers who are still employed but planning to retire in the coming decade —-- is on the upswing. “There’s a lot of interest in this ⅛10-year⅜ product,” said Victoria Stumpf, a loan officer with Third Federal Savings and Loan in Cleveland.
Why the growing attraction to going short? Start with interest rates. With an almost-certain increase in rates on the horizon as the Federal Reserve begins to “taper” its purchases of mortgage bonds and Treasury securities, fixed rates on 10-year...