Freddie Mac: Refinancing Homeowners Pick Fixed Rates, Shorter Terms

Homeowners who refinanced through Freddie Mac in the first quarter of 2012 overwhelmingly picked fixed rate loans and 31 percent chose new loans that would amortize in a shorter period than the old loan.  The information came Monday from Freddie Mac's Quarterly Product Transition Report.

The number of borrowers choosing a one-year adjustable rate mortgage (ARM) was statistically zero in both the first quarter of 2012 and the last quarter of 2011.  Sixty percent of homeowners who had one-year adjustable picked 15-year fixed rate mortgages (FRM) for their new loan.  The shorter term FRM was also extremely popular with borrowers who were refinancing from another 15-year (89 percent, unchanged from the previous quarter) or the slightly longer 20-year (68 percent, down from 73 percent). Only 9 percent of borrowers who were originally in a 15-year moved to a longer-term product.   

Borrowers refinancing hybrid ARM loan either stuck with those loans (32 percent) or moved to a 30-year FRM (57 percent.)  Borrowers also displayed some brand loyalty; 66 percent chose a loan with the same term as the one they had just paid off

Frank Nothaft, Freddie Mac vice president and chief economist said, "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."