More People Refinancing, Picking Shorter-Term Mortgages

BOSTON (CBS) - With all the economic turmoil lately, you might think people are too timid to take risks in the housing market. We keep hearing that it's a great time to buy a home or to refinance, but that the process is so discouraging and lenders are so stingy that it's not worth it.

Not so, at least at Fairway Mortgage in Needham, where they're bustling. Vice President Amy Slotnick says her office is as busy at it was during the refinance boom in 2009.

And the increased business is not people buying new houses.

WBZ-TV's Jim Armstrong reports

"In the last two weeks it has probably been 90% refinancing," says Slotnick.

Homeowners in the re-fi market are facing two big choices. On one hand, they can refinance their 30-year fixed mortgage to take advantage of lower rates and save some money every month. Many others, though, are refinancing into shorter-term mortgages. Those might cost them more money in the short run every month, but it also means they can finish with their mortgages years earlier than they thought possible.

"A lot of people are taking what they thought of as their traditional 30 year mortgage and reducing it to the 15-year and the 10-year terms right now," explains Slotnick. "This is an opportunity to take advantage of the market place and the interest rates, and to turn that into what is your overall financial plan."

But experts think that strategy might not be great for the health of the overall economy.

Boston University economics professor Alisdair McKay says what's happening now is "just sort of the textbook response to low interest rates."

He thinks families should make whatever choices are smartest for their own bottom lines. But, the national economy would likely benefit from a boost in spending.

"In the big picture, what we're suffering from is that there's too little consumption, there's too little investment," says Professor McKay.

Meaning the economy as a whole, might be better off if people refinanced for a longer term but at a lower rate, and took the money they saved on their mortgages every month and spent it somewhere else.