One of the newest options under the Obama Administration’s new Making Homes Affordable program is the 25 year mortgage refinance. Standard home loans typically consist of 30-year adjustable rate mortgages, but these can be tricky. Most popular when mortgage rates were high and expected to drop, these pay-off plans now tend to pale compared to the 25 year mortgage option. 25 year mortgage rates today are typically fixed, and are the lowest they’ve ever been. This makes now a great time to refinance your home loan, to lock yourself in to mortgage rates before they start to rise.
25 Year Mortgage Refinance Information
If you’ve been paying off an adjustable 30 year mortgage for the past five or so years, you might be alarmed to find yourself owing more than you can pay on your home loan. Because the average 25 yr mortgage rate is at an all-time low, a smart financial choice would be to refinance your mortgage to take advantage of it. Low fixed rates mean security in the future. Speak with your bank or home loan specialist to see what you can do to switch to a 25 year mortgage loan. You may have to pay a fee, but 25 year loans typically have much lower rates than 30 year loans, so you could end up saving money in the long run.
What to Look For in a Good 25 Year Mortgage
First off, a 25 year mortgage is only for people who plan to stay in their homes for the long haul. What you gain in low interest rates, you sacrifice in commitment. For people who want to flip their house quickly, a 10- or 15-year mortgage with no prepayment penalty might be a better bet
Second, you should look for three things in a good 25 year mortgage:
- Protection against rising rates (it should be fixed rate)
- No pre-payment penalty (you want to pay it down a.s.a.p)
- Should have far lower rates than a corresponding 30 year mortgage
If you can fill out this checklist, your 25 year mortgage is golden.
Fannie Mae, Freddie Mac, and 25 Year Mortgage Rates
The best 25 year mortgage rates are offered by government-supported lenders Fannie Mae and Freddie Mac. This is because many private lenders are concerned that they won’t be able to sell your mortgage debt to other lenders, since a 25-year mortgage is considered non-traditional in the mortgage world.
Loan-to-Value Ratios and 25 Year Mortgage Refinance
There are certain rules in place set by the Making Homes Affordable program regarding refinancing with a 25 year mortgage. First, the most distressed mortgages (loan-to-value ratio of 105 – 125 percent) are only eligible for this refinance if they go through the existing lender. Second, your mortgage has to be moderately distressed (loan-to-value ratio of 80 – 105%) in order to get a refinance through any lender. Any lower, and you can’t refinance through a 25 year mortgage.