Freddie Mac, in its recently released quarterly Product Transition Report, has found that in the second 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. And 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.
“Average interest rates on 30-year and 15-year fixed-rate mortgage loans fell pretty consistently through the latter half of the quarter, hitting 50-year lows in June according to Freddie Mac’s Primary Mortgage Market Survey," said Frank Nothaft, Freddie Mac's vice president and chief economist. "The ability to lock in a principal and interest payment at below five percent for 30-years is rare enough. The fact that a 30-year fixed-rate mortgage can be obtained for 4.5 percent or a 15-year mortgage for four percent is an amazing opportunity for borrowers."
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. Some loan products, such as one-year ARMs and balloons, are based on a small number of transactions. In the first six months of 2010, the ARM share of applications was six percent in Freddie Mac’s monthly survey, which includes purchase-money as well as refinance applications.
“The share of borrowers shortening their amortization terms is at its highest level in six years," said Nothaft. "In the second quarter of this year, 30 percent of borrowers who originally held a 30-year fixed rate loan refinanced into a 15- or 20-year FRM. If the borrower had a 30-year fixed rate loan at a 6.5 percent interest rate and a $200,000 principal balance, they could refinance and cut their payment by about $250 a month with a new 30 year fixed-rate loan or for about the same monthly payment as their old loan they could save some $70,000 in interest over the life of the loan with the shorter 20-year term loan.”
For more information, visit www.freddiemac.com.