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Fixed-Rate Mortgages Dominant Choice of Refinancing Borrowers

MCLEAN, Va., May 16, 2011 -- In the first quarter of 2011, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac (OTC: FMCC) Quarterly Product Transition Report released today. Refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate.

News Facts

  • An increasing share of refinancing borrowers chose to shorten their loan terms during the first quarter. Of borrowers who paid off a 30-year fixed-rate loan, 34 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004.  

  • Eighty-four percent of borrowers who had a hybrid ARM chose to refinance into a fixed-rate product during the first quarter, continuing a pattern of the past few years of borrowers revealing a strong preference for fixed-rate over variable-pay contracts.

Quotes

Attributed to Frank Nothaft, Freddie Mac vice president and chief economist

  • "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. 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.

  • "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."

Get the latest information from Freddie Mac's Office of the Chief Economist on Twitter: @FreddieMac

Quarterly Product Transition Information

These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans and the latest loan is for refinance rather than for home purchase. Some loan products, such as 1-year ARMs and balloons, are based on a small number of transactions. During the first quarter of 2011, the ARM share of applications was 6 percent in Freddie Mac's monthly ARM survey, which includes purchase-money as well as refinance applications.


Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

Related Links

FreddieMac.com    

Economic & Housing Research

Primary Mortgage Market Survey (PMMS®)

Primary Mortgage Market Survey® Archives

Bureau of Economic Analysis [U.S. Secondary Market Yields On Federal Housing Administration Mortgages 01/1949-12/1965]

Refi & ARM Share Data

SOURCE Freddie Mac

For further information: Chad Wandler, +1-703-903-2446, Chad_Wandler@freddiemac.com
 

The financial and other information contained in the documents that may be accessed on this page speaks only as of the date of those documents. The information could be out of date and no longer accurate. Freddie Mac does not undertake an obligation, and disclaims any duty, to update any of the information in those documents. Freddie Mac's future performance, including financial performance, is subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future results are discussed more fully in our reports filed with the SEC.


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