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Thursday, June 16, 2011

Building Home Equity the Old-fashioned Way

by Calculated Risk on 6/16/2011 03:32:00 PM

From Prashant Gopal at Bloomberg: Homeowners Refinance to 15-Year Mortgages to Add Equity (ht Brian)

Cecelia Kirchman happily added $250 to her payment when she refinanced last August. ... [The Kirchmans] are among the growing number of “equity builders” -- creditworthy homeowners with steady jobs and enough cash to lock in near record-low interest rates and shorten the length of their loans ...

The portion of borrowers refinancing in January who took 15-year mortgages rose to 29 percent from 11 percent two years earlier ...

The share of cash-in refinancings reached a record 44 percent in the fourth quarter, according to data from Freddie Mac dating to 1985. (see Freddie Mac: Very low Cash-Out Refinance Activity for more stats) ...

“They are people who -- rather than waiting for home values to rise -- are taking matters into their own hands,” [Stuart Feldstein, president of SMR Research Corp] said. “They are building equity on their own.”
Ahhh ... building equity the old-fashioned way.

And that brings up the topic of "burning the mortgage" - a quaint old traditional that might make a come back ...

Burning the MortgageHere is a 1949 magazine ad (ht Brian).

The text reads: “Burning the Mortgage – a memorable event in the typical American home. The toast – with MILLER HIGH LIFE, of course”

The "typical American home"? I wonder what they would have thought of all the mortgage brokers a few years ago talking about home equity being "dead money"?

And from the Bloomberg article:
Switching to a 15-year term made sense for Kirchman, 55, who has no plans of moving anytime soon and is looking ahead to retirement. ... “I’ll be retiring in 10 to 12 years,” Kirchman said. “I don’t like the thought of still having that as an expense. I’d rather be taking trips.”
I hope she plans a nice mortgage burning party!