Nearly 95% of all the refinancings funded by Freddie Mac in the first quarter were into a fixed-rate loan product, according to the company’s Quarterly Product Transition Report. The study only covers loans where Freddie Mac funded the original mortgage.
For the second consecutive quarter, virtually no refinancers sought out a one-year adjustable or balloon mortgage.
Over one-third (34%) of those who previously held a 30-year FRM took advantage of the lower interest rate environment and sought a fixed-rate loan with a shorter term, either 15 or 20 years. Freddie Mac said this was the highest percentage of those cutting their term when they refi since the first quarter of 2004, when it was also 34%.
Of those who originally had a 20-year FRM, 63% took a 15-year FRM as their new loan, while 28% increased their term by taking a 30-year FRM.
The reason for seeking a shorter term, explained Freddie Mac chief economist Frank Nothaft, was rates on 15-year FRMs were about three-fourths of a percentage point below those on 30-year FRMs during the first quarter.
Meanwhile, the one-year ARM borrowers who refinanced during the quarter and the hybrid ARM borrower, both overwhelming sought fixed-rate products, 89% and 84%, respectively. Those who didn’t seek an FRM took out a hybrid ARM.
As for consumer refinancing in general, Nothaft pointed to the Bureau of Economic Analysis estimate that the average coupon on single-family loans was about 6% at the end of 2010. “It’s no wonder we continue to see strong refinance activity into fixed-rate loans,” he said.
