September 11, 2012 (Chris Moore)

Regardless of whether their previous loan was a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM), borrowers chose a fixed-rate mortgage over 95 percent of the time when they refinanced their existing first mortgage during the second quarter of 2012 according to Freddie Mac’s Quarterly Product Transition Report.

Thirty percent of the borrowers who refinanced chose a 15-year or a 20-year mortgage to replace their original loan, down from thirty-five percent in the first quarter. Only three percent chose an adjustable rate loan. Sixty-seven percent of the borrowers stayed with the same term of their original loans.

By comparison, twenty-five percent of the borrowers who refinanced through the government’s Home Affordable Refinance Program (HARP) shortened their new loan term to either 15 or 20 years.

Borrowers whose original first mortgage was a hybrid ARM chose a fixed rate loan eighty-one percent of the time during the quarter, up from sixty-eight percent in the first quarter. Nineteen percent of borrowers who refinanced a hybrid ARM chose to refinance into the same type of product, down from thirty-two percent in the previous quarter.

Borrowers who refinanced through HARP and whose original loan was an ARM chose a fixed-rate mortgage ninety-five percent of the time while non-HARP borrowers stayed with another ARM about one-half of the time.

Frank Nothaft, vice president and chief economist of Freddie Mac, stated, “Fixed mortgage rates averaged 3.79 percent for 30-year loans and 3.04 percent for 15-year product during the second quarter in Freddie Mac’s Primary Mortgage Market Survey®, well below long-term averages and the lowest quarterly averages recorded in our survey. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.0 percent during the second 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-six percent of the time, a 20-year FRM twelve percent of the time and a 15-year FRM twenty-one percent of the time. That compares to sixty-four, fourteen, and twenty-one percent, respectively, in the first quarter.

Borrowers who originally had a 15-year FRM chose to stay with that product eighty-six percent of the time while eleven percent lengthened the term of their loans to 30 years and one percent lengthened their loans to 20 years. That compares to eighty-nine, eight, and one percent, respectively, from the previous quarter.

Tags: Freddie Mac, refinancing borrowers, Transition Report, fixed rte mortgage, adjustable rate mortgage, hybrid ARM, interest rate savings

Freddie Mac