Ongoing turmoil in the U.S. housing and mortgage markets led borrowers in droves into fixed-rate mortgages during the third quarter, according to a survey released late Thursday by Freddie Mac (FRE). The GSE reported that 94 percent of prime borrowers who originally had a 1-year conforming adjustable-rate mortgage chose a new conforming fixed-rate mortgage when they refinanced, and 82 percent of prime borrowers that initially had a conforming hybrid ARM refinanced into a conforming fixed-rate loan, as well. While the preference overwhelmingly shows the dominance of fixed-rate mortgages in the current market, it’s worth noting that Q3’s totals did ease up slightly from one quarter earlier — meaning more borrowers did choose an adjustable-rate mortgage during Q3, even if those borrowers remained well in the minority. According to Freddie, 97 percent 1-year ARM borrowers and 86 percent of hybrid ARM borrowers refinanced into fixed-rate mortgages during the second quarter. Borrowers already in a fixed-rate mortgage tended to stay there as well: more than 95 percent of borrowers who had a fixed-rate loan refinanced into another long-term fixed-rate loan, Freddie’s survey found. “The elevated interest-rate volatility that has been a feature of the capital markets in recent months has discouraged borrowers from seeking adjustable-rate mortgages unless they have at least several years worth of an initial fixed-rate period,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “When borrowers see so much change in interest rates it highlights the payment risk that they may face from future rate increases. “In the third quarter alone, weekly average rates on 1-year ARMs ranged from a low of 5.0 percent to a high of 5.5 percent; with this contract the borrower faces the uncertainty of not knowing what the interest rate will be in one year. In contrast, while rates on 5/1 hybrid ARMs were slightly higher, ranging from 5.7 to 6.4 percent in the third quarter, the borrower locks in that rate for five years.” The GSE’s data indicated that while 18 percent of borrowers who initially had a hybrid ARM refinanced back into that product, only 4 percent of borrowers who originally had a 30-year fixed-rate loan switched to an ARM loan — and all of those borrowers chose a hybrid loan product. The full transition matrix is available here. Write to Paul Jackson at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.