Freddie Mac: 95% of Refinanced Borrowers Opted for Fixed-Rate ...

08/14/2012 By: Esther Cho, DSNews.com

For borrowers who refinanced in the second quarter, fixed-rate mortgages dominated consumer preferences.

Among those who refinanced in Q2, more than 95 percent opted for a fixed-rate mortgage, according to the Freddie Mac Quarterly Product Transition report.

For those who had a hybrid ARM, 81 percent transitioned into a fixed-rate loan during the second quarter; the percentage represents the highest share in two years. In contrast, for those with a 15-year fixed rate loan, 2 percent transitioned into a hybrid ARM.

Also, 30 percent of those who refinanced in the second quarter shortened their loan term. However, those who refinanced under HARP tended to choose long-term, fixed-rate mortgages.

Twenty-five percent of HARP borrowers opted for shortened terms versus the 30 percent who did not refinance through HARP.

Frank Nothaft, Freddie Mac VP and chief economist, explained the benefits of a shorter term loan.

?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 second quarter,? said Nothaft. ?For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.?

The report also revealed different preferences between those who did and did not refinance under HARP. For HARP borrowers who originally had an ARM loan, 95 percent transitioned into a fixed-rate mortgage. For those who did not refinance under HARP and had an ARM loan, about half opted for another hybrid ARM.
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