Freddie Mac released its Quarterly Product Transition Report for the first three months of 2012. U.S. homeowners who mortgage refinance overwhelmingly chose fixed-rate mortgages over other loan products. Over 95 percent of borrowers prefer fixed rate mortgages whether they had adjustable-rate mortgages (ARMs) or fixed rate loans originally.
The percentage of borrowers who refinance to fixed-rate loans remain at the same share as reported Q1 last year.
The report reviewed mortgage refinance applications submitted to Freddie Mac during the first quarter of 2012. Following are some of the metrics revealed in the Freddie Mac survey:
- Thirty-one percent of borrowers paid off their 30-year fixed rate mortgages and refinanced into shorter-term loan products, including 15-year and 20-year mortgages.
- Freddie Mac’s report shows that 66 percent of borrowers refinanced into mortgages with the same term as their original loans.
- Borrowers with hybrid adjustable rate mortgages refinance to fixed-rate loans at a share of 68 percent. Freddie Mac said this represents the highest rate of homeowners switching to fixed-rate mortgages from hybrid ARMs since the first quarter of 2011. In 2011, 84 percent of borrowers refinanced to fixed–rate loans.
- Thirty-two percent of homeowners refinanced into similar hybrid ARM mortgages.
Mortgage Interest Rate Comparisons
Interest rates for 30-year fixed rate mortgages averaged 3.92 percent. The 15-year fixed rate product had an average interest rate of 3.19 percent during the first quarter of 2012. On average, 15-year fixed-rate mortgages had interest rates 0.75 percent of a point below 30-year loans. Some homeowners who can afford higher monthly mortgage payments choose shorter terms for their mortgages to take advantage of even lower interest rates.
According to Frank Nothaft, Freddie Mac Chief Economist, borrowers have “compelling incentive” to refinance their mortgages. Mortgage rates hit another record low of 3.83 percent just last week. Nothaft states that revisions made the Home Affordable Refinance Program (HARP 2.0) have motivated many borrowers to refinance out of high interest rate mortgages.
The Federal Finance Housing Agency agreed to eliminate the loan-to-value (LTV) cap for HARP. The LTV proved to be a major impediment to the number of borrowers unable to refinance their mortgages. Now, hundreds of thousands of homeowners find themselves in a better position to take advantage of HARP 2.0 and refinance their current mortgages to low interest rate loans.
Data used in the Freddie Mac Quarterly Product Transition Report come from a sampling of homes on which Freddie has funded a minimum of two consecutive loans. The last loan has to be a refinance mortgage instead of a purchase mortgage. Loan products like balloon mortgages and 1-year adjustable rate mortgages constitute a small number of refinancing transactions.