Fixed-Rate Mortgages Dominant Choice of Refinancing Borrowers

November 16, 2010

Refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate during the third quarter of 2010, according to Freddie Mac’s quarterly Product Transition Report.

While 30-year fixed-rate mortgages are still the most preferred product chosen for the new loan among borrowers who previously had that product or an ARM, borrowers who previously held shorter-term fixed-rate mortgages showed a stronger preference for staying with a 15-year or 20-year fixed-rate loan than they have in recent quarters. Overall, fixed-rate loans accounted for more than 95 percent of refinance loans.

Fixed mortgage rates fell throughout the third quarter in Freddie Mac's Primary Mortgage Market Survey, with 30-year fixed rates dropping to levels not seen since the early 1950s.

“We ended the second quarter excited that borrowers could lock in a rate of 4.75 percent for 30 years, and we ended the third quarter with rates at just a touch over 4.25 percent. It's no wonder borrowers are attracted to fixed-rate loans,” said Frank Nothaft, Freddie Mac vice president and chief economist. The share of borrowers shortening their amortization terms remains high. There is always a discount for shorter terms but the payments are often about 50 percent higher than a 30-year amortizing payment and thus are unaffordable to many homeowners. What we're seeing now is that the level of the 15-year payment is becoming more affordable to more borrowers."


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