More borrowers considering a 15-year mortgage

Many borrowers are looking to switch to a 15-year mortgage as the interest rate is more favorable.

While the 30-year fixed rate mortgage was at a record low last week – 3.53 percent – the interest rate on a 15-year plan was even better, dropping to 2.83 percent, according to an article in the Wall Street Journal. This is leading many borrowers to think about switching from one plan to the other.

"There's no question, the interest-rate differential has been much higher over the past year than at any other time," Frank Nothaft, Freddie Mac chief economist said in the article.

Nothaft added that the Federal Reserve policy was a huge contributing factor, as it has pushed short-term interest rates as close to zero as it can, which keeps other short-term lending rates fairly low.

Freddie Mac's most recent statistics showed that 31 percent of individuals who refinanced during the first quarter paid off a 30-year fixed-rate mortgage and swapped it for a shorter-term loan.

Karen Mayfield, national sales manager for the mortgage-banking division of Bank of the West, said that first-time buyers may not fully understand the costs involved in home maintenance and taxes. As such, it could be a good option to instead have a mortgage that is amortized over a shorter term so the borrower pays less interest over the lifetime of the loan. The flip-side though, is that the monthly payment would be higher.

With varying home financing options available, lenders would be well-advised to invest in mortgage loan software, to ensure that the best repayment plan is chosen for each individual borrower.

Financial advisors underline the importance of borrowers paying attention to every detail, such as how long they plan to keep the property or what the life cycle is on a current loan. Even so, if lenders used an amortization calculator as well, it would further ensure that a loan is created that will benefit both parties.