November 16, 2011 (Chris Moore)
Over ninety-five percent of borrowers who refinanced their home loans in the third quarter of 2011 picked a fixed rate loan according to Freddie Mac’s Quarterly Product Transition Report regardless of whether their previous loan was a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).
Borrowers also continued to take advantage of the historically low interest rates and shortened the term of their loans at even higher rates in the third quarter than they did in the second quarter.
Forty percent of the borrowers who refinanced a 30 FRM chose a 15-year or a 20- year mortgage to replace their original loan, the highest share of borrowers to do so since the second quarter of 2003, up from thirty-seven percent in the second quarter.
Borrowers who refinanced a hybrid ARM chose a fixed rate loan sixty-three percent of the time during the quarter, up from fifty-four percent in the second quarter. Thirty-seven percent of borrowers who refinanced a hybrid ARM chose to refinance into the same type of product, down from forty-six percent in the previous quarter.
Frank Nothaft, vice president and chief economist of Freddie Mac, stated, “Fixed mortgage rates averaged 4.29 percent for 30-year loans and 3.47 percent for 15-year product during the third 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 5.3 percent during the third quarter of 2011. It’s no wonder we continue to see strong refinance activity into fixed-rate loans.”
Refinancing borrowers whose original loan was a 30-year FRM chose another 30-year FRM fifty-eight percent of the time, a 20-year FRM fifteen percent of the time and a 15-year FRM twenty-five percent of the time. That compares to sixty-two, thirteen, and twenty-three percent, respectively, in the second quarter.
Borrowers who originally had a 15-year FRM chose to stay with that product eighty-six percent of the time. Ten percent lengthened the term of their loans to 30 years and two percent lengthened their loans to 20 years. That compares to seventy-nine, fifteen, and two percent, respectively, in the previous quarter.
“Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third quarter. For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. The initial interest rate on a 5/1 hybrid ARM was about 1.2 percentage points lower than on a 30-year fixed-rate loan. For borrowers who plan to remain in their current home for only a few years, the hybrid ARM allows for even a greater interest-rate savings,” Nothaft added.
Tags: Freddie Mac, refinancing borrowers, Transition Report, fixed rte mortgage, adjustable rate mortgage, hybrid ARM, interest rate savings