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.