More Than 95 Percent Of Refinancing Borrowers Choose Fixed-Rate Mortgages
Thirty Percent Shorten Loan Term When Refinancing
In the second quarter of 2012, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac Quarterly Product Transition Report released today.
Refinancing borrowers clearly preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate.
- Of borrowers who refinanced during the second quarter, 30 percent reduced their loan term, while 67 percent of borrowers kept the same term as the loan they had paid off.
- Eighty-one percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the second quarter, the highest share since the second quarter of 2010, while the remaining 19 percent chose to refinance into the same type of product.
- Borrowers who refinanced under the Home Affordable Refinance Program (HARP) were more likely to take out a long-term, fixed-rate mortgage. For example, 25 percent of HARP borrowers shortened their loan term when they refinanced during the second quarter, compared with 30 percent of borrowers who refinanced outside of HARP. Further, 95 percent of borrowers who were refinancing out of an ARM under the HARP program chose a fixed-rate mortgage. In contrast, borrowers who had an ARM, but did not refinance through HARP, about one-half opted for another hybrid ARM.
Rates for the week
- “Fixed mortgage rates averaged 3.79 percent for 30-year loans and 3.04 percent for 15-year product during the second quarter in Freddie Mac’s Primary Mortgage Market Survey®, well below long-term averages and the lowest quarterly averages recorded in our survey. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.0 percent during the second quarter of 2012. It’s no wonder we continue to see strong refinance activity into fixed-rate loans.
- “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 second quarter. For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”
Freddie Mac’s survey is the average of loans bought from lenders last week, including discount points. Follow this link to view today’s MN and WI mortgage interest rates.