29 Percent of Borrowers That Refinance Shorten Mortgage Term During Third Quarter
More Than 95 Percent Choose Fixed-Rate Loans
MCLEAN, Va., Nov. 13, 2012 -- In the third quarter of 2012, 29 percent of borrowers that refinanced an existing mortgage chose to shorten their loan term, based on the Freddie Mac (OTC: FMCC) Quarterly Product Transition Report released today. Further, refinancing borrowers clearly preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate.
- Of borrowers who refinanced during the third quarter of 2012, 29 percent reduced their loan term, while 68 percent of borrowers kept the same term as the loan that they had paid off; 3 percent chose to lengthen their loan term.
- More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless what the original loan product had been. For example, 82 percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the third quarter, the highest share since the second quarter of 2010, while the remaining 18 percent chose to refinance back into a hybrid ARM.
- Those borrowers who refinanced under the Home Affordable Refinance Program (HARP) were more likely to take out a long-term, fixed-rate mortgage. For example, 25 percent of HARP borrowers shortened their loan term when they refinanced during the third quarter, compared with 31 percent of borrowers who refinanced outside of HARP. Further, of those borrowers who were refinancing out of an ARM, if they refinanced under the HARP program then more than 95 percent chose a fixed-rate mortgage; in contrast, of borrowers that had an ARM but did not refinance through HARP, about one-half opted for another hybrid ARM.
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist
- "Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about 0.7 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. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.
- "Fixed mortgage rates averaged 3.55 percent for 30-year loans and 2.84 percent for 15-year product during the third quarter in Freddie Mac's Primary Mortgage Market Survey®, well below long-term averages and the lowest quarterly averages recorded in our survey. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.0 percent during the third quarter of 2012. It's no wonder we continue to see strong refinance activity into fixed-rate loans."
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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 2012, the refinance share of applications averaged 82 percent in Freddie Mac's monthly refi survey, and the ARM share of applications was 5 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. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com.
SOURCE Freddie Mac
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