Freddie Mac recently reviewed the loan choice of refinancing borrowers. Borrowers chose fixed rate loans 99% in the second quarter, up from 98% in the first quarter, even though they had formerly had ARM loans. Although they predominantly chose 30 year loans, there was an increase in refinancers choosing 15 year fixed rate loans, up 2% among original ARM borrowers and up 4% among original fixed rate borrowers.
These choices toward fixed rate borrowing and shorter mortgages should come as no surprise, since in April mortgage rates reached new lows, with very small additional interest required to shorten the mortgage duration from 30 to 15 years.
Shortening your loan duration has several benefits that compensate for the higher monthly payment. You build equity faster and reduce the total interest paid over the life of the loan, ensuring that the loan is largely paid off by retirement time.