Still, for the committed seller willing to do some prep work and come to terms with the current value of his or her home, locking in a buyer isn’t impossible.

By listing in early January, you might be able to catch some of those early birds who start browsing in the winter so that they can find a new home before school starts in the fall, said Louis Cammarosano, general manager of HomeGain.com, a real-estate website. In fact, many buyers tend to start their searches online right after Christmas, and continue throughout January and February, he said.

“If you hit the ground running and you’re a fresh listing that has done everything right, you’ve got the best shot,” said Cammarosano.

Consider the following tips to give your home the best chance to get noticed — and sold — in 2011.

Price It Right from the Start

Many sellers suffer from attachment bias, said Tara-Nicholle Nelson, consumer educator for real-estate website Trulia.com. They believe that their home is worth more than they’d pay for it in another context. While it’s always a bad idea to overprice a home, it’s especially dangerous in times like this because there is so much competing inventory in many local markets.

Nelson’s advice: Give yourself a reality check by looking inside comparable homes during open houses. That can help you get a clearer idea of your home’s value.

You might even consider interviewing a few real-estate agents to get more than one take on how the home should be priced, Cammarosano said.

The longer something sits on the market, the more price reductions you might have to make and the more potential buyers will assume that there’s something wrong with the home, he said. So more often than not, it’s best not to try testing the waters with a higher price, he adds.

Don’t be afraid to advertise in the listing and marketing materials that it’s not a foreclosure or short sale, Nelson said. In markets where distressed sales are plentiful, there are buyers who simply don’t want to deal with the extra hassle and uncertainty of a short sale or bank-owned property, she said.

Get the House Ready

Most sellers know they need to declutter, paint in neutral colors and generally stage the home as best as they can to help buyers envision themselves in the home. Often, this is done on the advice of a real-estate agent or professional stager.

The closer you can get your home looking like a photo from a Pottery Barn catalog, the better off you will be, said Beth Jaworski, a real-estate agent in the Milwaukee area.

And make sure that your cabinets and refrigerators are cleaned out and decluttered, too. “You want to have a minimum of ‘stuff’ in the house. The less stuff you have, the larger the closets, basement and garage will look,” she said.

Jaworski also recommends having a home inspection done a month before putting the home on the market to identify any major defects that need to be corrected.

Provide as Much Information as Possible

Have energy bills and a list of updates available for buyers to see, Jaworski said.

“Buyers are always curious what the utility bills are, how old the roof is, how many layers it has, how old the major mechanicals are and when that addition was added,” she said. “The more information you can provide on the house, the better.”

Consider providing a floor plan with listings as well, Cammarosano said. That way the prospective buyers don’t have to keep making return visits to determine how their furniture will fit in the space — they’ll have the dimensions in hand.

Make It Easy to Show

The more available you can make your home for showings, the better, said David Welch, a broker/associate in Orlando, Fla.

Make it easy for your real-estate agent to access the property and keep the place clean.

“You want your home to be easy to show because you don’t know if you will get a second chance,” Welch said. “Trust me, the buyer wants to like your house. Keep it in show-ready condition,” he said, so they aren’t turned off by a first impression.

Be Flexible

Buyers are in the driver’s seat these days, and they know they can make all sorts of unusual requests without risking the deal. Be ready.

“Buyer wants to see the house at 7 a.m. on Tuesday, OK,” Jaworski said. “Buyer wants to bring 10 family members and an inspector to check out the house for three hours this weekend, OK. Buyer wants you to include the kitchen table and chairs, the painting over the fireplace and your snow blower, OK.”

“The more flexible you are,” she said, “the better off you will be.”

Source: MarketWatch

Westside LA Real Estate Advice: 30-year benchmark falls to 4.17 percent, lowest on records dating back to 1971.

Rates on fixed mortgages dropped to their lowest levels in decades this week after the Federal Reserve unveiled a massive bond-buying program to help spur economic growth.

Mortgage buyer Freddie Mac said Tuesday the average rate for 30-year fixed loans fell to 4.17 percent from 4.24 percent last week. That’s the lowest on records dating back to 1971.

The average rate on 15-year fixed loans fell to 3.57 percent from 3.63 percent. That’s the lowest since the survey began in 1991.

The Fed detailed plans last week to buy $600 billion in Treasury bonds. On Wednesday, the central bank gave more details, saying it plans to purchase $105 billion in Treasurys over the next month. The extra demand means Treasurys will produce lower yields for investors. Mortgage rates tend to track those yields.

Mortgage rates have been at or near historic lows since April as investors, concerned about the health of the global economy, shift their money into Treasurys, pushing down rates on the bonds and consumer and business loans.

While more borrowers have refinanced their home loans, low rates have done little to boost the beleaguered housing market. Would-be buyers remain on the sidelines, too worried about their jobs or unable to qualify for a loan because of tighter credit standards. Others can’t sell their own homes before buying another.

Home sales were the worst in decades this summer, and home prices fell in half of U.S. cities in the third quarter, the National Association of Realtors said Thursday.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

Rates on five-year adjustable-rate mortgages fell to their lowest level in at least five years. They averaged 3.25 percent, down from 3.39 percent a week earlier. It is the lowest rate on records dating back to January 2005.

Rates on one-year adjustable-rate home loans were unchanged at 3.26.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount.

The average fee for 30-year and 15-year fixed loans in Freddie Mac’s survey was 0.8 point. It was 0.7 point for 1-year and five-year mortgages.

Source: Associated Press

Home prices are rising in virtually every corner of the state. They’ve climbed for nine consecutive months, and in July posted a 10.4% gain year-over-year. That puts the state’s median price at $315,000 — nearly twice the national median of $183,000.

And the news is even better in coastal cities.

San Francisco posted the biggest gain of any U.S. metro over the past year, rising 14.3%. The median price there is now more than $607,000. Meanwhile, San Diego has climbed 11.2% (median price: $389,000) and Los Angeles jumped 9.2% (median price: $345,000).

Meanwhile, Florida, Arizona and Nevada — California’s erstwhile bubble-state partners — continue to struggle. So where is the Golden State’s strength coming from?

“I think it comes from the fact that prices went down so far and so quick,” said Lesley Appleton-Young, California Association of Realtors’ chief economist. “That left a lot of people here saying, ‘Wow, affordable California housing.’”

However, a quick home price rebound was delayed by the crush of foreclosures that accompanied the subprime mortgage meltdown. California real estate had become so expensive that a basic single-family home required many buyers to overextend themselves with exotic loans.

That is no longer the case. Most of the subprime-related distressed properties have been flushed from the system. And when a foreclosure does hit the market, it’s snapped up. The median days it took to sell a home in July was just 44 — lightening fast.

“It’s the dearth of supply for distressed properties that has put pressure on home prices,” said Appleton-Young. “More than half the homes on the market last year drew multiple offers.”

Plus, the California economy is picking up. Even in a recession, it has remained one of the world’s 10 largest economies, mainly because it is driven by every major industry — aerospace, tech, software, finance, agriculture, tourism. So as more of those industries recover and employment picks up, demand for housing will jump.

“California is a much larger, stronger and more diversified economy than the other [bubble] states,” according to Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA.

Another factor that has helped lift prices is a trend toward more short sales. Fewer of the distressed properties are going all the way through the foreclosure process. “The shift to short sales in itself would increase home prices,” said Mark Goldman, who teaches real estate at San Diego State University.

That’s because short sellers usually occupy and take care of the homes until they’re sold, leaving the properties in better condition and worth more than similar foreclosed homes.

Goldman added that California markets are, generally, more constrained than any of the other bubble states. Florida and Nevada, for example, still have room to develop and grow in most areas. But the lack of developable land is especially acute in California, pushing home prices up.

Finally, the California state government has not sat idle. “California provided markets with more significant price support,” he said, “That played a role in elevating prices.”

The state support came in the form of tax credits of up to $10,000 for first-time homebuyers and buyers of new homes. Some purchasers were able to combine the state credit with one from the federal government to reduce their costs by $18,000.

For home sellers in other states, what’s happening in California is encouraging. Trends often begin on the coast, so they’re hoping the recovery will roll eastward.

Source: CNNMoney.com

A total of 18,541 new and resale houses and condos closed escrow last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was down 2.1 percent from 18,946 sales in July, and down 13.8 percent from 21,502 sales in August 2009, according to MDA DataQuick of San Diego.

Last month’s sales didn’t fall as sharply as in July, when the market lost most of the boost that had been provided by federal home buyer tax credits. July sales fell 20.6 percent from June and fell 21.4 percent from a year earlier. The now-expired credits spurred many buyers to purchase homes sooner than they otherwise would have, creating a market lull in their wake.

Last month’s sales were the lowest for the month of August since 2007, when 17,755 homes sold, and the second-lowest since August 1992, when 16,379 sold. Last month’s sales were 31.5 percent lower than the August average of 27,070 sales since 1988, when DataQuick’s statistics begin. The average change in sales between July and August is a gain of 3.9 percent, compared with last month’s 2.1 percent decline from July.

“The loss of home buyer tax credits explains much of the sales weakness over the past two months. But other factors are suppressing sales, too, such as the lack of meaningful job growth and potential buyers’ concerns about job security. Also, for many out home shopping now, there’s little beyond ultra-low mortgage rates to pressure them to buy sooner rather than later, especially in areas where the number of homes for sale is climbing,” said John Walsh, MDA DataQuick president.

“Over the next couple of months it will be interesting to see how many home shoppers opt for the sure thing, a spectacularly low mortgage rate, and how many hold off in hopes prices fall significantly. The latter group will have to keep a close eye on rates. If they jump much it could wipe out the advantage of a modest price drop.”

The median price paid for a Southland home fell last month to $288,000, down 2.4 percent from $295,000 in July but up 4.7 percent from $275,000 in August 2009. The median has declined on a month-to-month basis for the past three months, since hitting a high for this year of $305,000 in May.

The median has risen on a year-over-year basis for nine consecutive months. However, the 4.7 percent gain in August was the lowest since that string of annual gains began last December with a 4.0 percent increase.

The median’s low point for the current housing cycle was $247,000 in April 2009, while the high point was $505,000 in mid 2007. The median’s peak-to-trough drop was the result of both a decline in home values as well as a shift in sales toward lower-cost homes, especially inland foreclosures.

Last month, foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 34.7 percent of the resale market, up from 34.2 percent in July but down from 41.7 percent a year ago. The all-time high was February 2009 at 56.7 percent, DataQuick reported.

Government-insured FHA loans, a popular choice among first-time buyers, accounted for 36.6 percent of all home purchase loans in August, up from 36.0 percent in July but down from 39.5 percent in August 2009.

Last month 20.3 percent of all sales were for $500,000 or more, down from 22.3 percent in July but up from 19.4 percent a year ago. The low point for $500,000-plus sales was February 2009, when 13.6 percent of sales crossed that threshold. Over the past decade, a monthly average of 25.4 percent of homes sold for $500,000 or more.

Viewed differently, Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 29.4 percent of existing single-family house sales last month, down from 30.4 percent in July but up from 27.8 percent a year ago. Over the last decade those higher-end areas have contributed a monthly average of about 33 percent of regional sales. Their contribution to overall sales hit a low of 21.0 percent in January 2009.

High-end sales continue to be hampered by the credit crunch that struck three years ago, making adjustable-rate mortgages (ARMs) and “jumbo” loans more difficult to obtain.

Last month ARMs represented 5.5 percent of all purchase loans, down from 6.1 percent in July but up from 3.9 percent in August 2009. Over the past decade, a monthly average of nearly 40 percent of all home purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.9 percent of last month’s purchase lending, down from 18.5 percent in July but up from 15.7 percent in August 2009. Before the August 2007 credit crisis, jumbos accounted for 40 percent of the market.

Absentee buyers – mostly investors and some second-home purchasers – bought 22.0 percent of the Southland homes sold in August, paying a median $208,000. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 25.6 percent of August sales, paying a median $200,000. In February this year cash sales peaked at 30.1 percent. The 22-year monthly average for Southland homes purchased with cash is 14.2 percent.

The “flipping” of homes has trended higher over the past year. Last month the percentage of Southland homes bought and re-sold within a six-month period was 3.5 percent, compared with 3.6 percent in July and 2.3 percent a year ago. Last month flipping varied from as little as 3.1 percent of total sales in San Diego County to as much as 4.2 percent in San Bernardino County.

MDA DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,158 last month, down from $1,204 in July, and down from $1,207 in August 2009. Adjusted for inflation, last month’s payment was 48.3 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 57.6 percent below the current cycle’s peak in August 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying is above-average, MDA DataQuick reported.

Source: DQNews.com

When you are interviewing REALTORS® to market your home, you’ll be introduced right away to a priceless document—the comparative market analysis(CMA.) This is one of the areas in which the real estate industry really earns its keep—by showing you in black and white what your competition is. But like a sword, it is a tool that can cut both ways. You and your agent will use the CMA, among other tools, to determine where your home will stand in comparison to others which are on the market, and those which have recently sold to determine the highest possible asking price. Your buyer will use it to find ways to reduce his or her offer.

CMA’s are about facts which can be qualified and quantified. The CMA is typically designed to give quick capsules of information such as number of bedrooms and baths, approximate square footage, size of major rooms, amenities such as fireplaces and pools, age of the home, property taxes, listing agent contact information and more.

CMA’s can include homes that are currently for sale and those which have recently sold. They can go back in time as long ago as a year or a month or week ago. CMA’s can cover areas as narrow as one or two streets surrounding your home, or as broad as an entire subdivision.

What is not included in the CMA are those factors that affect perception, and that is the key difference between why one home with identical features will ultimately command a higher price than its twin. Perception alters reality, and this is a crucial consideration in understanding the buying and selling process and the value of the CMA. Much of a home’s value will ultimately be determined by the emotional impact it has on buyers. These emotions are based on subjective elements such as drive-up appeal, interior dec or, colors, views from the windows, light, darkness, room flow, and hundreds of other factors.

At the end of each home’s information on the CMA report there will be a brief statement provided by the listing agent. This statement is usually a combination of fact and subjective opinion, and will generally cover selling restrictions or selling points. It could be anything from “seller’s agent must be present at all showings” to “kitchen and master bath completely remodeled in 1997″ to “Charming! Must see!” (Keep in mind that Realtors are salespeople, self-employed and have individual styles of marketing and that some will be better at writing CMA reports than others.)

For privacy reasons the CMA that is offered for public consumption does not list every piece of information that has been obtained by the seller’s agent. It will give the what, when, where, but it won’t give the who (the seller’s identity) and the why (why the home is being put up for sale.) The reasons are two-fold, to protect the seller’s privacy and to keep from inadvertently giving the buyer an advantage in a distress situation.

The CMA is clearly a selling tool, but like any tool, it doesn’t work very well by itself. It takes a skilled person to be able to use it. For this reason, the CMA will always need to be interpreted by a professional or with complete objectivity by the seller or buyer.

Remember that the CMA is also a buying tool; it is taken just as seriously by the buyer and his or her agent. As you and your agent are going to use the CMA to ask the highest possible price for your home, the buyer is going to use it to find reasons to either choose or eliminate your home, and to arrive at the lowest price possible.

Source: Realty Times

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home’s purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.

Now, the IRS is developing a strategy for separating the 2009 taxpayers who are required to repay the credit from those who are not.

A review by the Inspector General earlier this year found that the IRS could not easily distinguish between home purchases made in 2008 and 2009. That heightened concerns that some claims could be erroneous or even fraudulent, that buyers could, for example, claim their purchase came later than it actually occurred.

Thursday’s release reported that 73,000 claims, more than 4% of the 1.8 million homebuyers who received the credit, had incorrect purchase dates recorded by the IRS.

Some of the inaccuracies counted against the taxpayers, Nearly 60,000 were listed as purchasing in 2008 (meaning they had to repay the credit) or had no purchase dates at all, rather than their correct 2009 purchase dates, which would free them of the obligation to pay it back.

It is also taking a look at all those deceased taxpayers who received credits.

The inspector general reported that 1,326 single people listed as dead by the Social Security Administration claimed more than $10 million in credits. The IRS threw out 528 of those 1,326 claims, saving $4 million.

Source: CNNMoney.com

Enter Keith Gumbinger, a leading mortgage expert, with an interesting proposal for how the government can help you, help the housing market, and even help whoever owns your mortgage. Gumbinger, a vice president at the HSH Associates mortgage consulting firm, wants the federal government to issue what he calls “value gap coverage.” It would reduce your interest payments, reduce your incentive to walk away from your mortgage, and show that behaving well doesn’t make you a sucker.

“This is for people who are underwater on their mortgages but still current on them and have every intention of remaining so, and hope to remain in their homes for the foreseeable future,” says Gumbinger. “These people are being compelled to pick up the tab for reckless borrowers and failing banks, and get absolutely no help from anywhere for themselves. How about a reward for doing the right thing for a change?”

Let me show how this would work, using HSH numbers that I’ve rounded for simplicity’s sake. Say you bought a house for $350,000 in July 2006 — those were the days of 100% financing, so you borrowed $350,000 on a 30-year fixed-rate mortgage at 6.8%. The house is now worth $280,000, but your mortgage balance is $334,000. The current rate for a 30-year fixed-rate loan, if you could get one, is 4.7%.

Under Gumbinger’s plan, you’d get a new $280,000 mortgage at 4.7%, and the government would guarantee the other $54,000, on which you’d pay 4.7% interest to the current mortgage holder. This would reduce your payments by $6,700 a year, or roughly 25%. Your mortgage holder wouldn’t have to take a write-down, because the shortfall would be guaranteed by Uncle Sam. You get lower payments, preserve your credit rating, and save your pride by not becoming a deadbeat.

The government is probably on the hook, in one way or another, for some of your shortfall now. This way everyone gets breathing space for the home market to recover. The government’s exposure would shrink over time as house prices begin to rise modestly (or so we hope) and your payments gradually reduce the principal on your loan. You wouldn’t have any equity in your house until its market value exceeds the loan balance plus the government’s guarantee. But then again, you don’t have any equity now.

You can find Gumbinger’s detailed plan, with the fees he proposes to cover costs right here.

Sure, this plan isn’t perfect. Among other things, we’d have to make sure people didn’t immediately sell their house, stick the government with the $54,000 bill, then buy another house with a low-down-payment FHA mortgage to reduce monthly payments and have all the equity upside.

But Gumbinger’s idea strikes me as a better place to start than current restructuring programs, which sound great but somehow don’t seem to work out.

How much would this cost the government? Who knows? But it has to be cheaper financially and socially than leaving millions of honorable homeowners at higher risk of foreclosure and forcing them to pay above-market rates on underwater loans. 

Source: Fortune

The number of buyers who signed contracts to purchase previously occupied U.S. homes increased in July but remained well below last year’s levels, a sign that demand for housing remains weak.

The National Association of Realtors said Thursday its seasonally adjusted index rose 5.2 percent from a month earlier to a reading of 79.4. Economists surveyed by Thomson Reuters had expected the index would fall to 74.9.

The index was still down 19 percent from the same month last year. June’s reading was the lowest on records dating to 2001. It was revised slightly downward to 75.5.

The index provides an early measurement of sales activity because there is usually a one- to two-month lag between a sales contract and a completed deal.

High unemployment, weak job growth and tight credit have hurt the housing market. Sales picked up in the spring when the government was offering tax credits of up to $8,000. However, once the tax credits expired on April 30, sales plunged.

“The recovery looks to be a long process, ” Lawrence Yun, the Realtors’ chief economist, said in a statement. “For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”

The sales report was driven by a nearly 12 percent jump in the West and a more than 6 percent increase in the Northeast. Sales were up 4 percent in the Midwest and about 1 percent in the South.

Though mortgage rates have been at or near the lowest level in decades , the economy remains weak. Plus, many buyers have been scared away by the prospect that home prices could start to turn downward again — something that most analysts expect.

The index tracks signed sales contracts for previously occupied homes. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Source: Associated Press

National home prices jumped a substantial 3.6% in the past year, according to the S&P/Case-Shiller Home Price Index released on Tuesday. Prices also climbed 4.4% in the second quarter compared with a 2.8% plunge in the first quarter.

“While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead,” said David M. Blitzer, chairman of the Index Committee at Standard & Poor’s. “Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year.”

Of course, the positive report was buoyed by the government’s tax credit program, which refunded as much as $8,000 for homebuyers. With that program now over, markets could cool.

“We all know what happened to housing after the homebuyers tax credit ended,” said Mike Larson, real estate analyst for Weiss Research. “It’s been an Acapulco-sized cliff-dive.”

And because this report is a lagging indicator, Larson adds that “it would be foolhardy to think that this report tells us that prices will continue to rise.” Instead, he expects prices to slowly deteriorate over the next several months.

In fact, home prices across the country could be substantially lower a year from now, according to Pat Newport, an analyst with IHS Global Insight. “It’s now apparent that the demand for housing is a lot weaker than anyone thought,” he said.

That has resulted in a glut of inventory, which a slew of bank repossessions of foreclosed properties is only making worse. Plus job gains are still proving elusive.

“These three factors are enough to bring home prices down,” Newport said.

Winners and Losers

A market basket of 20 metro areas tracked by the S&P/Case-Shiller home price indexes showed that prices gained in all markets but one. The index is up 4.2% year-over-year, well above a 3.1% forecast from industry experts as compiled by Briefing.com. The month-over-month gain was 1%.

“Las Vegas was the only city to record a fall in prices during June (-0.6%), compared with a month earlier. All 19 other markets were either up or flat, with Chicago, Detroit and Minneapolis the biggest winners. Each gained 2.5%.

Fifteen of the 20 cities recorded 12-month price rises, with San Francisco leading the way. Its 14.3% increase was one of three cities posting double-digit gains, with San Diego prices jumping 11.2% and Minneapolis 10.7%.

Source: CNNMoney.com

Between January and June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term.

What’s prompting the shift to shorter loans? Historically low interest rates for fixed-rate mortgages.

Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, says Bob Walters, chief economist at online lender Quicken Loans.

The average rate on a 15-year fixed-rate mortgage was 3.86% for the week ending Aug. 26, according to Freddie Mac’s weekly survey of conforming mortgage rates.

A Change in Thinking

The financial situation of those capable of refinancing today is a factor in the shift, Mr. Walters says. These people typically are homeowners with the best credit and the most equity — and, therefore, most suited for a shorter-term loan.

But there might be some other psychology at work. “We’re seeing a different view on debt than maybe we’ve seen in the past,” he says. Today, homeowners are saying, “I really want to pay this off. I’m going to bite the bullet and take the payment and work toward paying this down.”

A 15-year mortgage also acts as somewhat of a forced savings account for homeowners, says Leif Thomsen, chief executive of Mortgage Master, a privately owned lender, given that the higher payments help a borrower pay down the principal at a quicker clip.

This is a huge shift in borrower thinking. “There was a drive a couple of years ago to take out the biggest mortgage that you could and use all of the money you would have otherwise had in the house and put it into stocks and bonds–to think of your house and mortgage as part of your entire investment portfolio,” says Amy Crews Cutts, deputy chief economist for Freddie Mac.

“That worked for people who do investment finance for a living and are good at managing accounts,” she says. “But for the average person, debt is a drag on their psyche as well as their overall budget.” Many Americans have reverted to the goal of paying off their house and getting rid of their mortgage, Ms. Cutts adds.

Doing the Math

Refinancing into a shorter-term mortgage isn’t a strategy for everyone, however.

Choosing a shorter term usually means you’ll get a better rate–and you’ll pay much less interest over the life of the loan–but a shorter time frame ramps up monthly mortgage payments.

For example, with a 4.5% interest rate on a 30-year fixed-rate mortgage of $200,000, you would have a monthly payment of $1,015, including principal and interest, Ms. Cutts says. The monthly payment jumps to about $1,480 with a 4% interest rate on a 15-year fixed-rate loan.

Of course, if the refinancing borrower’s current 30-year loan has a higher rate, the difference between the monthly payments could be lower. Still, you should count on some increase in monthly payments.

In general, Mr. Walters says, those who choose 15-year fixed-rate mortgages are older and have more equity and less debt than other folks. They also earn higher incomes and don’t have some of the added expenses that younger homeowners typically do.

“People who are taking these loans are financially stable and can afford the payments, but at the same time are planning on staying in their home for an extended period of time,” Mr. Thomsen says.

Mr. Walters says you shouldn’t take on a 15-year fixed-rate mortgage unless you have substantial savings, including at least a year’s worth of living expenses in liquid accounts.

Also, he recommends having a debt-to-income ratio below 35%. So if you have a gross salary of $5,700 per month, for instance, your monthly debt–including any mortgage payments, taxes, insurance, homeowners-association dues as well as auto and student loans and credit-card debt–would have to be a max of $1,995 to get a 35% ratio.

Borrowers who don’t meet those standards, or are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments on the principal to pay off the loan faster, says Mr. Walters.

For instance, if you refinance a $200,000 mortgage into a 30-year loan with a 4.5% rate, and then apply $100 of the savings to the principal payment each month, you’d save $31,700 in interest over the life of the loan, Ms. Cutts says. And you would pay off the mortgage in 25 years, instead of 30, she adds.

What’s more, you would have the flexibility of not paying that $100 in months when money gets tight. “Maybe today you’re feeling flush with money. Maybe you’re worried in the future that income might change,” Ms. Cutts says. With a 30-year mortgage, you have more flexibility. “Shortening to 15 years is a pretty big bump in payment.”

Source: Wall Street Journal