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Fixed Rates: The Choice of a Refi Generation

NationalMortgageProfessional.com
Aug 15, 2011

In the second quarter of 2011, fixed-rate loans accounted for approximately 95 percent of refinance loans, based on the recently Freddie Mac Quarterly Product Transition Report. Refinancing borrowers predominantly preferred fixed-rate mortgages (FRM), regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate. "Fixed mortgage rates averaged 4.65 percent for 30-year loans and 3.84 percent for 15-year product during the second quarter in Freddie Mac's Primary Mortgage Market Survey, well below long-term averages," said Frank Nothaft, Freddie Mac vice president and chief economist. "The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.3 percent during the second quarter of 2011. It's no wonder we continue to see strong refinance activity into fixed-rate loans." According to the report, an increasing share of refinancing borrowers chose to shorten their loan terms during the second quarter. Of borrowers who paid off a 30-year FRM, 37 percent chose a 15- or 20-year loan, the highest such share since the third quarter of 2003. Fifty-five percent of borrowers who had a hybrid ARM chose an FRM during the second quarter, while the remaining 45 percent chose to refinance into the same type of product. The share refinancing from hybrid ARM to hybrid ARM was the highest since the second quarter of 2004. "Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second quarter," said Nothaft. "For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. The initial interest rate on a 5/1 hybrid ARM was about 1.2 percentage points lower than on a 30-year fixed-rate loan. For borrowers who plan to remain in their current home for only a few years, the hybrid ARM allows for even a greater interest-rate savings."
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Aug 15, 2011
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