Freddie Mac has announced the results of its quarterly Product Transition Report that concludes in the third 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. While 30-year fixed-rate mortgages are still the most preferred product chosen for the new loan among borrowers who previously had that product or an ARM, borrowers who previously held shorter-term fixed-rate mortgages showed a stronger preference for staying with a 15-year or 20-year fixed-rate loan than they have in recent quarters. Overall, fixed-rate loans accounted for more than 95 percent of refinance loans.
"Fixed mortgage rates fell throughout the third quarter in Freddie Mac's Primary Mortgage Market Survey, with 30-year fixed rates dropping to levels we hadn't seen since the early 1950s," said Frank Nothaft, Freddie Mac vice president and chief economist. "We ended the second quarter excited that borrowers could lock in a rate of 4.75 percent for 30 years, and we ended the third quarter with rates at just a touch over 4.25 percent. It's no wonder borrowers are attracted to fixed-rate loans."
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. Year-to-date through September, the ARM share of applications was six percent in Freddie Mac's monthly ARM survey, which includes purchase-money as well as refinance applications.
"The share of borrowers shortening their amortization terms remains high," said Nothaft. "There is always a discount for shorter terms but the payments are often about 50 percent higher than a 30-year amortizing payment and thus are unaffordable to many homeowners. What we're seeing now is that the level of the 15-year payment is becoming more affordable to more borrowers."
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