Refinancing borrowers overwhelmingly chose fixed-rate loans in the first quarter, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate mortgage, according to Freddie Mac's quarterly Product Transition Report.
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 refinancing borrowers who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs. Overall, fixed-rate loans accounted for more than 95% of refinance loans during the quarter.
Interest rates on 30-year and 15-year fixed-rate products averaged 5% and 4.38%, respectively, in Freddie Mac's Primary Mortgage Market Survey, Freddie Mac's vice president and chief economist, Frank Nothaft, says. The average initial rate on a 5/1 hybrid arm was 4.2%.
‘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 adds. "During the first quarter, 25 percent of borrowers who had 30-year fixed-rate loans refinanced into a 15- or 20-year fixed-rate loan – the largest percentage shortening their term since the third quarter of 2004, when about 30 percent of borrowers who had a 30-year fixed-rate loan opted for a shorter-term fixed-rate loan or a balloon note.’
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.
SOURCE: Freddie Mac