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More Than 95 Percent of Refinancing Borrowers Choose Fixed-Rate Mortgages

MCLEAN, Va., Nov. 15, 2011 -- In the third 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 clearly preferred 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 second quarter. Of borrowers who paid off a 30-year fixed-rate loan, 40 percent chose a 15- or 20-year loan, the highest such share since the second quarter of 2003.

  • Sixty-three percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the third quarter, while the remaining 37 percent chose to refinance into the same type of product.  

Quotes

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

  • "Fixed mortgage rates averaged 4.29 percent for 30-year loans and 3.47 percent for 15-year product during the third 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 5.3 percent during the third quarter of 2011. It's no wonder we continue to see strong refinance activity into fixed-rate loans.

  • "Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third 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.

  • "The extension to the end of 2013 and additional enhancements to the Home Affordable Refinance Program, announced on October 24, provide opportunities to eligible borrowers who had not yet refinanced.  More than 900,000 borrowers have already refinanced via the Program through September.  The enhancements provide incentives for eligible borrowers to shorten their loan terms, from 30 years to 20- or 15-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 third quarter of 2011, the refinance share of applications averaged 78 percent in Freddie Mac's monthly refi survey, and the ARM share of applications was 7 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

Refi & ARM Share Data

http://www.freddiemac.com/news/finance/refi-arm_archives.htm

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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