U.s. Borrowers Increase Payments On Mortgages

Many consumers have focused on making more timely payments to their credit card lenders

, and credit card delinquencies were successfully reduced for the last 26 months.

This mentality is now shifting to payments on mortgage loans, as many consumers are attempting to reverse the recent trend of extracting cash from their home equity.

In addition, more lenders are reporting that a number of consumers have switched to making two payments on their loans every month instead of one, The Financial Times reports. By conducting their expenditures this way, homeowners can potentially make one additional payment annually, and send thousands of dollars back into their savings accounts.

In fact, over the lifetime of a loan, a borrower with a $200,000 mortgage with 5 percent interest could save more than $33,000 just by increasing the frequency of their payments, Loan Depot says, according to the source.

Wells Fargo is one of the lenders reporting a rise in this consumer habit. The company recently reported a 10 percent increase in the number of customers enrolled in its bi-weekly payment plan, the source says.

Still, lenders are saying that borrowers are opting for shorter mortgages, which may help them pay off their loans more quickly. However, many may not be able to qualify for this, as they typically require larger upfront payments than a standard 30-year fixed-rate loan.

While this recent trend highlights the proper fiscal decisions being made by consumers, it also indicates a potential weakness in the housing market, the Times reports. Many borrowers may simply be making payments due to the fact that home values may be taking a big hit in the coming months.

This decline in home prices has also led to a decrease in the number of cash outs, the news source says. A cash out occurs when consumers refinance mortgages and pocket the difference in price. However, the number of homeowners conducting this sort of transaction fell to its lowest level in 25 years during the third quarter of 2010.

Because of this, many homeowners find themselves owing more on their mortgage loans than the total value of their properties, the news source says. As a result, it is becoming increasingly difficult for consumers to sell their homes or to secure refinance loans.

Still, many economists expect 2011 to be a year of recovery for the housing market. In a recent speech, Frank Nothaft, Freddie Mac's chief economist, predicted more growth in the sector during the latter half of the year.

by: ryan fields

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