Freddie Mortgage Refinancing Dominated by Fixed-Rate Products

All but 5% of refinance mortgages originated during Q110 were fixed-rate mortgages (FRMs) and the rate of borrowers with 30-year mortgages that refinanced into shorter-term loans was at its highest level in nearly six years, according to the latest product transition report released by Freddie Mac (FRE). Of borrowers who had 30-year FRMs, 75% refinanced into a new 30-year FRM, while 15% opted for a 15-year FRM and the remaining 10% chose a 20-year FRM. Freddie said the combined 25% of 30-year borrowers that refinanced into a shorter-term loan is the most since Q304, when 30% of 30-year borrowers refinanced into a balloon mortgage or shorter-term FRM. In Q409, 80% of 30-year FRM borrowers refinanced into a new 30-year loan, 13% chose 15-year FRMs and 7% chose 20-year products. Regardless of whether the original mortgage was a fixed- or adjustable-rate mortgage (ARM), 95% of borrowers chose to refinance with a FRM. No borrower group refinanced into a one-year ARM, but the largest group (11%) of borrowers that refinanced into a hybrid ARM were borrowers whose old mortgage was a one-year ARM. “Average interest rates on 30-year and 15-year fixed-rate mortgage loans remained extraordinarily low during the first quarter, averaging 5.00% and 4.38% 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 4.2% 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,” Nothaft added. The Freddie Mac data, shown in the chart below, is based on a sample of properties where Freddie Mac funded at least two successive loans and the latest loan is for refinance rather than for home purchase: Of the borrower group that was in a 20-year FRM, 58% chose to refinance into a 15-year FRM, 34% chose a 30-year loan and 8% chose to remain in a 20-year mortgage. The 15-year FRM borrower group saw 72% of refinance borrowers stay with a 15-year loan, while 2% chose a 20-year FRM and 25% chose a 30-year FRM. “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,” Nothaft said. Write to Austin Kilgore. The author held no relevant investments.

Most Popular Articles

Latest Articles

Test post for new category functionality HW+

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nulla in quam euismod, consectetur urna vel, placerat magna. Sed gravida, nisl eget rutrum porta, libero orci tristique neque, luctus lobortis massa felis sit amet ex. Curabitur ut dapibus enim. Fusce in placerat purus, a hendrerit tortor. Sed neque lorem, tincidunt sed magna suscipit, volutpat rutrum tellus. […]

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please