Refi Borrowers Prefer Fixed-Rate Loans

Borrowers who are refinancing out of a one-year adjustable rate mortgage or a hybrid-ARM are overwhelmingly replacing those loans with fixed-rate loans, according to Freddie Mac. In total, 94% of prime borrowers who originally had a one-year, conforming ARM chose a conforming fixed-rate loan when refinancing in the third quarter, according to Freddie Mac's survey. 82% of prime borrowers who initially had a hybrid ARM refinanced into a conforming fixed-rate mortgage. Freddie Mac chief economist Frank Nothaft said that elevated interest-rate volatility in the third quarter has discouraged borrowers from seeking ARM loans. "When borrowers see so much change in interest rates it highlights the payment risk that they may face from future rate increases," he said.