According to the Freddie Mac Quarterly Product Transition Report, in the first quarter of 2012, fixed-rate mortgages (FRMs) accounted for more than 95 percent of refinance loans. Refinancing borrowers preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or an FRM. Of borrowers who refinanced during Q1, 31 percent reduced their loan term by paying off a 30-year loan and replacing it with a 20-year FRM, 15-year FRM or other shorter-term loan. In addition, 66 percent of borrowers kept the same term as the loan that they had paid off.
"Fixed mortgage rates averaged 3.92 percent for 30-year loans and 3.19 percent for 15-year product during the first quarter in Freddie Mac's Primary Mortgage Market Survey (PMMS), 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 5.1 percent during the first quarter of 2012. It's no wonder we continue to see strong refinance activity into fixed-rate loans."
Sixty-eight percent of borrowers who had a hybrid ARM chose a FRM during Q1, the highest share since the first quarter of 2011, while the remaining 32 percent chose to refinance into the same type of product.
"Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about three-quarters of a percentage point lower during the first quarter," said Nothaft. "For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, under the enhanced Home Affordable Refinance Program—HARP—announced by FHFA on Oct. 24, 2011, certain risk-based fees are waived for HARP borrowers who refinance into shorter-term loans."