More Than 95 Percent Of Refinancing Borrowers Choose Fixed-Rate Mortgages

Thirty-one Percent Shorten Loan Term with Refinanced Loan

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May 14, 2012, 10:45 ET

MCLEAN, Va., May 14, 2012 /PRNewswire/ -- In the first quarter of 2012, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac (OTC: FMCC) 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.

News Facts

Of borrowers who refinanced during the first quarter of 2012, 31 percent reduced their loan term by paying off a 30-year loan and replacing it with a 20-year, 15-year, or other shorter-term loan. In addition, 66 percent of borrowers kept the same term as the loan that they had paid off.
Sixty-eight percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the first quarter, the highest share since the first quarter of last year, while the remaining 32 percent chose to refinance into the same type of product.

Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist:

"Fixed mortgage rates averaged 3.92 percent for 30-year loans and 3.19 percent for 15-year product during the first quarter in Freddie Mac's Primary Mortgage Market Survey^®, well below long-term averages. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.1 percent during the first 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 first quarter. For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, under the enhanced Home Affordable Refinance Program—HARP—announced by FHFA on October 24, 2011, certain risk-based fees are waived for HARP borrowers who refinance into shorter-term loans."

Get the latest information from Freddie Mac's Office of the Chief Economist on Twitter:@FreddieMac

Quarterly Product Transition Information
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. Some loan products, such as 1-year ARMs and balloons, are based on a small number of transactions. During the first quarter of 2012, the refinance share of applications averaged 81 percent in Freddie Mac's monthly refi survey, and the ARM share of applications was 6 percent in Freddie Mac's monthly ARM survey, which includes purchase-money as well as refinance applications.

Quarterly Product Transition Statistics

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com.