May 15, 2012 (Chris Moore)
Fixed rate loans, spurred by historically low mortgage rates, continued to be the overwhelming choice with borrowers who refinanced their home loans in the first quarter of 2012 according to Freddie Mac’s Quarterly Product Transition Report.
Over ninety-five percent of the borrowers who refinanced their existing first mortgage chose a fixed rate mortgage regardless of whether their previous loan was a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).
Thirty-five percent of the borrowers who refinanced out of a 30-year FRM chose a 15-year or a 20- year mortgage to replace their original loan, down from forty percent in the fourth quarter of 2011. Only one percent chose an adjustable rate loan.
Borrowers who refinanced a hybrid ARM chose a fixed rate loan sixty-eight percent of the time during the quarter, up from fifty-eight percent in the fourth quarter. Thirty-two percent of borrowers who refinanced a hybrid ARM chose to refinance into the same type of product, down from forty-two percent in the previous quarter.
Frank Nothaft, vice president and chief economist of Freddie Mac, stated, “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.”
Refinancing borrowers whose original loan was a 30-year FRM chose another 30-year FRM sixty-four percent of the time, a 20-year FRM fourteen percent of the time and a 15-year FRM twenty-one percent of the time. That compares to fifty-eight, fifteen, and twenty-five percent, respectively, in the fourth quarter of 2011.
Borrowers who originally had a 15-year FRM chose to stay with that product eighty-nine percent of the time while eight percent lengthened the term of their loans to 30 years and one percent lengthened their loans to 20 years. That was unchanged from the previous quarter.
“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,” Nothaft added.
Tags: Freddie Mac, refinancing borrowers, Transition Report, fixed rate mortgage, adjustable rate mortgage, hybrid ARM, interest rate savings