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Freddie Mac: Most refis don't shorten mortgage duration

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Fixed mortgage rates averaged 3.55% for 30-year loans and 2.84% for 15-year loans, which was below long-term averages and the lowest quarterly averages recorded by the Freddie Mac primary mortgage market survey.

29% of borrowers who refinanced during Q3 shortened their mortgage. 68% of borrowers kept their same loan term. And 3% of borrowers chose to extend their loan term.

On average, borrowers who refinanced under the Home Affordable Refinance Program took out long-term, fixed-rate mortgages. 25% of HARP borrowers shortened their loan term after they refinanced during Q3, compared to 31% of borrowers who refinanced outside the program.

More than 95% of refinancing borrowers chose a fixed-rate loan.

"Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about 0.7 percentage points lower during the third quarter,” said vice president Frank Nothaft of Freddie Mac. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.” 

Borrowers are not capitalizing on the lower rates by using the Nothaft strategy and shortening duration. For example, the average coupon for single-family loans was 5% during the third quarter of this year, according to the Bureau of Economic Analysis.

cmlynski@housingwire.com

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