August 15, 2011 (Chris Moore)

Ninety-five percent of refinancing borrowers picked a fixed rate loan in the second quarter of 2011 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).

A larger share of borrowers also chose to take advantage of the historically low interest rates and shortened the term of their loans during the second quarter. Thirty-seven 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 third quarter of 2003.

More than half of the borrowers, fifty-five percent, who refinanced a hybrid ARM chose a fixed rate loan during the quarter. Forty-five percent of borrowers who refinanced a hybrid ARM chose to refinance into the same type of product.

The share of borrowers who refinanced from a hybrid ARM to another hybrid ARM was the highest since the second quarter of 2004.

Frank Nothaft, vice president and chief economist of Freddie Mac, stated, “Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second 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.”

Refinancing borrowers whose original loan was a 30-year FRM chose another 30-year FRM sixty-one percent of the time, a 20-year FRM thirteen percent of the time and a 15-year FRM twenty-four percent of the time.

Borrowers who originally had a 15-year FRM chose to stay with that product eighty-one percent of the time. Fifteen percent lengthened the term of their loans to 30 years and two percent lengthened their loans to 20 years.

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

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