Freddie Mac has announced that in the first quarter of 2010, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate, according to Freddie Mac’s quarterly Product Transition Report. While 30-year fixed-rate mortgages are still the most preferred product chosen for the new loan, 15-year fixed-rate mortgages gained favor among refinancers who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs. Overall, fixed-rate loans accounted for more than 95 percent of refinance loans during the quarter.
“Average interest rates on 30-year and 15-year fixed-rate mortgage loans remained extraordinarily low during the first quarter, averaging 5.00 percent and 4.38 percent respectively in Freddie Mac’s Primary Mortgage Market Survey,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “The average initial rate on a 5/1 hybrid ARM was 4.20 percent during the first three months of 2010. With fixed-rate interest rates near a generational low and initial interest rates on hybrid ARMs close to fixed-rate levels, large numbers of homeowners have chosen fixed-rate loans for refinance. While homeowners are choosing the comfort that comes with constant monthly principal and interest payments on fixed-rate mortgages, at the same time many borrowers are now looking at paying down their mortgage balances faster by choosing a shorter mortgage term of 15 or 20 years instead of 30 years. During the first quarter, 25 percent of borrowers who had 30-year fixed-rate loans refinanced into a 15- or 20-year fixed-rate loan, the largest percentage shortening their term since the third quarter of 2004, when about 30 percent of borrowers who had a 30-year fixed-rate loan opted for a shorter-term fixed-rate loan or a balloon note.”
These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans and the latest loan is for refinance rather than for home purchase.
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