May 19, 2011 (Jeff Alan)
The continuing historically low mortgage interest rates have prompted refinancing borrowers to overwhelmingly choose fixed rate mortgage loans over adjustable rate mortgages (ARM). In the first quarter of 2011, when borrowers financed their existing mortgage, over 95 percent chose a fixed rate loan according to statistics compiled by Freddie Mac.
According to the recently released Quarterly Product Transition Report, an increasing share of refinancing borrowers chose to also shorten their loan terms. Of borrowers who paid off a 30 year fixed rate loan, 22 percent opted for a 15 year fixed rate loan and 12 percent opted for a 20 year fixed rate loan.
Refinancing borrowers who paid off a 20 year fixed rate loan chose a lesser 15 year fixed rate loan 63 percent of the time, while 8 percent retained a loan of the same length.
Frank Nothaft, vice president and chief economist of Freddie Mac explained, “The mortgage rate on 15-year fixed was about three-fourths percentage point below that on 30-year fixed during the first quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term. In the first quarter we saw the largest share of borrowers shortening their term while refinancing in seven years.”
Borrowers who had a hybrid ARM chose to refinance to a fixed rate mortgage 84 percent of the time in the first quarter. Of those, 74 percent chose a 30 year fixed rate mortgage, 4 percent chose a 20 year fixed rate mortgage, and 6 percent chose a 15 year fixed rate mortgage. Sixteen percent felt comfortable enough with their ARMs to chose the same loan again.
Refinancing borrowers who had 1-Year ARMs chose to refinance to a fixed rate mortgage 89 percent of the time. Sixty-two percent of those chose a 30 year fixed rate mortgage, 22 percent chose a 15 year fixed rate mortgage, and the reminder chose 20 year fixed rate mortgages.
Those borrowers that refinanced balloon loans did so without hesitation as 96 percent chose a fixed rate mortgage. Sixty four percent chose a 30 year fixed rate mortgage, 21 percent chose a 15 year fixed rate mortgage, and 11 percent went with a 20 year fixed rate mortgage.
“Fixed mortgage rates averaged 4.85 percent for 30-year loans and 4.12 percent for 15-year product during the first quarter in Freddie Mac’s Primary Mortgage Market Survey®, well below long-term averages,” Nothaft added. “The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 6 percent at the end of 2010. It’s no wonder we continue to see strong refinance activity into fixed-rate loans.”
Tags: Freddie Mac, 30 year fixed rate mortgage, 20 year fixed rate mortgage, 15 year fixed rate mortgage, adjustable rate mortgage, ARM, hybrid ARM, balloon loan