BORROWERS MOVE INTO SHORTER-TERM
August 18, 2009 by: Freddie Mac
McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the second quarter
of 2009, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless
of whether their original loan was an adjustable-rate mortgage (ARM) or fixed.
Ninety-nine percent of prime borrowers who originally had a conforming ARM
selected a new conforming fixed-rate mortgage when they refinanced, up slightly
from a revised share of 98 percent in the first quarter. While 30-year
fixed-rate mortgages tended to be the preferred new product, 15-year fixed-rate
mortgages gained favor among refinancers, with roughly a 2 percentage point
increase in the proportion choosing this product for original ARM borrowers and
nearly a 4 percentage point increase among original fixed-rate borrowers.
“When interest rates hit very low levels for fixed-rate mortgages, borrowers
often take this opportunity to lower their interest rate and shorten their loan
term,” said Frank Nothaft, vice president and chief economist for Freddie Mac.
“In April mortgage rates reached new lows for both 15-year and 30-year
fixed-rate loans in Freddie Mac’s Primary Mortgage Market Survey®. Many
borrowers could shorten their loan terms without having a big increase in their
mortgage payments, thereby building equity faster, reducing the total interest
paid over the life of the loan, and ensuring their loan is largely paid off by
“Both refinancing borrowers and families buying homes are shying away from
ARMs in the current environment. During the second quarter, 5/1 hybrid ARMs
carried an average rate of 4.9 percent while 30-year fixed mortgage rates were
only at 5.0 percent on average in our survey. The small benefit from the lower
rate is not enticing enough to cover the risk that rates will rise in the future
from these historic lows.”
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.
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.
These estimates come from a sample of properties
on which Freddie Mac has funded at least two successive loans. Transactions are
further screened to verify that the latest loan is for refinance rather than for
home purchase. Where applicable, data include amortizing as well as
interest-only or option-payment loans. Row totals may not sum to 100% due to
with rate resets at 1-year intervals for life of loan; contains a small number
of other equal-frequency reset ARMs such as 3/3 ARMs, etc.
with first rate reset period longer than other regular rate reset periods, such
as 3/1 ARMs, 5/1 ARMs, etc.
3Includes all maturities with
one rate reset.
4Fixed-rate mortgages with
maturities of 15 years or shorter, with 15-year being the dominant product type.
5Fixed rate mortgages with
maturities of 20 or 25 years.
6Fixed-rate mortgages with
maturities of 30 years or more.
For more information, contact: chief_economist @
freddiemac (.) com
Although Freddie Mac attempts to provide reliable,
useful information in this document, Freddie Mac does not guarantee that the
information is accurate, current or suitable for any particular purpose. The
information is therefore provided on an "as is" basis, with no warranties of any