US Fixed-Rate Mortgages Dominant Choice of Refinancing Borrowers Trend Towards Shorter Loan Terms Continues
Location: McLean
Author:
Eileen Fitzpatrick
Date: Thursday, February 17, 2011
News Facts
- An increasing share of refinancing borrowers chose to shorten their loan terms during the fourth quarter. Of borrowers who paid off a 30-year fixed-rate loan, 32 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004. Of borrowers who refinanced a 20-year loan, 70 percent chose a 15-year loan, the highest such percentage found in Freddie Mac’s quarterly analysis.
- The trend toward shorter terms also was clear in the annual 2010 data. Overall, 2010 had the largest percentage of borrowers since 2003 who shortened their term when refinancing a long-term, fixed-rate loan.
Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist
- “Fixed mortgage rates continued to slide lower during the first part of the fourth quarter, reaching 4.17 percent for the 30-year mortgage in mid-November in Freddie Mac’s Primary Mortgage Market Survey® and the lowest fixed rates since the early 1950s. It’s no wonder borrowers are attracted to fixed-rate loans.
- “The mortgage rate on 15-year fixed was about five-eights percentage point below that on 30-year fixed during the fourth quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term. In 2010 we saw the largest share of borrowers shortening their term while refinancing since 2003.”
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 2010, the ARM share of applications was 6 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. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
|
QUARTERLY PRODUCT TRANSITION STATISTICS |
|||||||
|
|
New Product |
||||||
|
Quarter |
Old Product |
1-Year ARM1 |
ARM – Hybrid2 |
Balloon3 |
FRM 15yr4 |
FRM 20yr5 |
FRM 30yr6 |
|
200904 |
1-Year ARM |
1% |
2% |
0% |
22% |
4% |
71% |
|
ARM – Hybrid |
0% |
11% |
0% |
9% |
2% |
78% |
|
|
Balloon |
0% |
6% |
0% |
26% |
5% |
64% |
|
|
FRM 15yr |
0% |
0% |
0% |
70% |
2% |
28% |
|
|
FRM 20yr |
0% |
1% |
0% |
55% |
8% |
36% |
|
|
FRM 30yr |
0% |
0% |
0% |
13% |
7% |
80% |
|
|
201001 |
1-Year ARM |
0% |
7% |
0% |
16% |
4% |
73% |
|
ARM – Hybrid |
0% |
12% |
0% |
8% |
3% |
78% |
|
|
Balloon |
0% |
8% |
0% |
24% |
7% |
60% |
|
|
FRM 15yr |
0% |
1% |
0% |
72% |
2% |
25% |
|
|
FRM 20yr |
0% |
0% |
0% |
58% |
9% |
33% |
|
|
FRM 30yr |
0% |
1% |
0% |
16% |
12% |
72% |
|
|
201002 |
1-Year ARM |
3% |
3% |
0% |
24% |
3% |
66% |
|
ARM – Hybrid |
0% |
16% |
0% |
6% |
2% |
76% |
|
|
Balloon |
1% |
12% |
0% |
24% |
9% |
54% |
|
|
FRM 15yr |
0% |
1% |
0% |
71% |
3% |
24% |
|
|
FRM 20yr |
0% |
1% |
0% |
57% |
9% |
33% |
|
|
FRM 30yr |
0% |
1% |
0% |
18% |
12% |
69% |
|
|
201003 |
1-Year ARM |
2% |
6% |
0% |
29% |
5% |
59% |
|
ARM – Hybrid |
0% |
19% |
0% |
6% |
3% |
72% |
|
|
Balloon |
0% |
11% |
0% |
25% |
10% |
53% |
|
|
FRM 15yr |
0% |
1% |
0% |
84% |
2% |
13% |
|
|
FRM 20yr |
0% |
1% |
0% |
65% |
12% |
23% |
|
|
FRM 30yr |
0% |
1% |
0% |
17% |
14% |
68% |
|
|
201004 |
1-Year ARM |
0% |
9% |
0% |
27% |
9% |
55% |
|
ARM – Hybrid |
0% |
21% |
0% |
6% |
6% |
67% |
|
|
Balloon |
0% |
9% |
0% |
23% |
8% |
60% |
|
|
FRM 15yr |
0% |
1% |
0% |
87% |
1% |
10% |
|
|
FRM 20yr |
0% |
1% |
0% |
70% |
10% |
19% |
|
|
FRM 30yr |
0% |
1% |
0% |
20% |
12% |
67% |
|
Notes:
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 rounding.
1Adjustable-rate mortgages 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.
2Adjustable-rate mortgages 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.
These data can be found at http://www.freddiemac.com/news/finance/refi_archives.htm. For more information, contact us at 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 kind whatsoever. Opinions and estimates contained in this document are those of Freddie Mac currently and are subject to change without notice. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. © 2011 by Freddie Mac.
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