Why is there an increase in prepayment of mortgages when interest rates decline?

EthanR answered 5 months ago …

Oldman is correct, but I want to add another reason to the mix. Interest rates decline when the economy weakens. People begin to worry about their jobs and the future. For psychological reasons, many decide to pay off their mortgages all at once or as quickly as possible. Another thing to realize is that as your mortgage matures, the amount of interest is declining and the principal is increasing. So the tax benefits of the mortgage are reduced as the loan cycle ages. In fact, in states where homes are inexpensive, the standard deduction is sometimes as much or more than the itemized deduction one can get from the mortgage, thus rendering the tax benefits almost useless.