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Fixed-Rate Mortgages Dominate Refinance Market

For Immediate Release

February 19, 2008
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the fourth quarter of 2007, 92 percent of prime borrowers who originally had a 1-year conforming adjustable-rate mortgage (ARM) chose a new conforming fixed-rate mortgage when they refinanced and 89 percent of prime borrowers who initially had a conforming hybrid ARM refinanced into a conforming fixed-rate loan as well. The comparable numbers in the third quarter were 85 percent and 84 percent, respectively.

“The turmoil in the financial markets that started in August and continued through the fourth quarter led most mortgage lending institutions to tighten their underwriting standards and thus some ARM products were either no longer available or came with more restrictions,” said Amy Crews Cutts, deputy chief economist for Freddie Mac. “However, even with the financial market problems in the fourth quarter, conforming mortgage rates on all four of the ARM and fixed-rate products tracked by Freddie Mac's Primary Mortgage Market Survey® fell by roughly one-quarter of a percentage point. With 30-year fixed mortgage rates averaging 6.2 percent over the quarter, many conforming mortgage borrowers found this product very attractive.

“The difference between 15-year and 30-year fixed mortgage rates is quite narrow at the moment. When these rates are within a half of a percentage point of one another we see borrowers are more inclined to choose the longer amortizing loan because of the large payment difference.”

The Refinance Product Transition Report indicates that 52 percent of borrowers who originally had a 15-year fixed-rate loan switched to a 30-year fixed-rate mortgage when they refinanced in the fourth quarter. The rate was 58 percent in the third quarter. Conversely, only 7 percent of borrowers with 30-year fixed-rate loans chose 15-year fixed-rate when they refinanced in the fourth quarter.

The Report also shows that in the fourth quarter 83 percent of borrowers who originally had a 30-year fixed-rate mortgage refinanced into another 30-year fixed-rate mortgage. This rate compares to 79 percent in the third quarter. More borrowers who originally had a hybrid ARM mortgage switched into a 30-year fixed, compared to the third quarter of 2007. The share of borrowers who originally had a balloon and refinanced into the same product rose to 12 percent in the fourth quarter from 2 percent in the previous quarter.

Borrowers who originally had a 1-year ARM, with interest-rate adjustments occurring on equal frequencies for the life of the loan, stayed with a 1-year ARM product 3 percent of the time when they refinanced in the fourth quarter of 2007, down from a 5 percent share in the third quarter and a 2 percent share a year ago. Three percent of 1-year ARM borrowers switched into a hybrid ARM product in the fourth quarter, down from 8 percent in the third quarter of 2007.

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.

QUARTERLY PRODUCT TRANSITION STATISTICS
  New Product
Quarter Old Product 1-Year ARM1  ARM – Hybrid2 Ballon3 FRM 15yr4  FRM 20yr5  FRM 30yr6 
200604 1-Year ARM 2% 9% 1% 21% 9% 57%
ARM - Hybrid 0% 19% 0% 5% 8% 68%
Balloon 0% 11% 0% 10% 7% 71%
FRM 15yr 0% 3% 0% 32% 9% 55%
FRM 20yr 0% 4% 0% 12% 23% 61%
FRM 30yr 0% 6% 0% 5% 8% 81%
200701 1-Year ARM 1% 7% 2% 20% 12% 57%
ARM - Hybrid 0% 17% 0% 6% 12% 65%
Balloon 0% 10% 1% 11% 10% 68%
FRM 15yr 0% 3% 0% 33% 10% 54%
FRM 20yr 0% 3% 0% 13% 25% 59%
FRM 30yr 0% 5% 0% 5% 9% 81%
200702 1-Year ARM 4% 10% 1% 18% 8% 60%
ARM - Hybrid 0% 15% 0% 6% 13% 65%
Balloon 0% 9% 0% 10% 9% 71%
FRM 15yr 0% 2% 0% 34% 10% 53%
FRM 20yr 0% 4% 0% 14% 22% 60%
FRM 30yr 0% 5% 0% 5% 11% 79%
200703 1-Year ARM 5% 8% 0% 17% 4% 64%
ARM - Hybrid 0% 15% 0% 5% 10% 69%
Balloon 0% 9% 2% 12% 9% 69%
FRM 15yr 0% 3% 0% 28% 11% 58%
FRM 20yr 0% 5% 0% 11% 20% 64%
FRM 30yr 0% 6% 0% 5% 9% 79%
200704 1-Year ARM 3% 3% 2% 24% 4% 64%
ARM - Hybrid 0% 10% 1% 10% 7% 72%
Balloon 0% 6% 12% 17% 6% 60%
FRM 15yr 0% 1% 0% 38% 9% 52%
FRM 20yr 0% 3% 0% 15% 25% 57%
FRM 30yr 0% 4% 0% 7% 7% 83%

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.

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 www.FreddieMac.com/finance/refi_archives.html. 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. © 2007 by Freddie Mac.

Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage pass through securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible more than 50 million times, ensuring financing for one in six homebuyers and more than four million renters.

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