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Refinancing Borrowers Overwhelmingly Choose Fixed-Rate Mortgages in First Quarter

Borrowers Attracted by 50-Year Interest-Rate Lows for Fixed-Rate Mortgages

For Immediate Release

May 21, 2009
Contact: corprel@freddiemac.com
or (703) 903-3933

 

McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the first quarter of 2009, more than 99 percent of prime borrowers who originally had a conforming adjustable-rate mortgage (ARM) chose a new conforming fixed-rate mortgage when they refinanced, up slightly from a revised share of just below 99 percent in the fourth quarter. Furthermore, nearly 100 percent of borrowers who had a fixed-rate loan refinanced into another long-term fixed-rate loan, matching the fourth quarter share.

"Whether for refinance as our report shows or for home purchase, borrowers are shying away from ARM loans in the present environment," said Frank Nothaft, vice president and chief economist for Freddie Mac. "The lowest fixed mortgage rates in 50 years are attractive by themselves, and when we look at average ARM interest rates that are nearly the same as the fixed rates being offered, it is easy to see why borrowers are making the choice for fixed-rate mortgages.

"During the first quarter, initial interest rates on 5/1 hybrid ARM loans were as much as half a percentage point above interest rates on 30-year fixed-rate mortgages. Rates on 1-year ARMs were below those of 30-year fixed rates, but usually by about one- or two-eighths of a point along with the risk that the rate could be a lot higher in a year or two when the loan resets. Freddie Mac's Primary Mortgage Market Survey® recorded three new record lows for 30-year fixed mortgage rates during the quarter, hitting 4.85 percent with 0.7 points the last week of March."

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.

QUARTERLY PRODUCT TRANSITION STATISTICS
New Product
Quarter Old Product 1-Year ARM1 ARM – Hybrid2 Ballon3 FRM 15yr4 FRM 20yr5 FRM 30yr6
200801 1-Year ARM 5% 3% 1% 22% 4% 66%
ARM - Hybrid 0% 20% 0% 8% 4% 67%
Balloon 0% 8% 5% 20% 6% 61%
FRM 15yr 0% 1% 0% 57% 4% 37%
FRM 20yr 0% 4% 0% 39% 19% 39%
FRM 30yr 0% 2% 0% 13% 7% 78%
200802 1-Year ARM 3% 3% 0% 29% 7% 59%
ARM - Hybrid 0% 14% 0% 8% 4% 73%
Balloon 0% 7% 0% 18% 6% 70%
FRM 15yr 0% 1% 0% 49% 6% 44%
FRM 20yr 0% 3% 0% 31% 19% 47%
FRM 30yr 0% 2% 0% 14% 8% 77%
200803 1-Year ARM 3% 5% 0% 23% 6% 62%
ARM - Hybrid 0% 15% 0% 8% 3% 74%
Balloon 0% 7% 0% 20% 5% 67%
FRM 15yr 0% 2% 0% 38% 5% 55%
FRM 20yr 0% 4% 0% 19% 12% 65%
FRM 30yr 0% 3% 0% 10% 4% 83%
200804 1-Year ARM 1% 0% 0% 26% 3% 70%
ARM - Hybrid 0% 2% 0% 6% 2% 90%
Balloon 0% 1% 0% 13% 5% 82%
FRM 15yr 0% 0% 0% 38% 4% 58%
FRM 20yr 0% 0% 0% 22% 13% 64%
FRM 30yr 0% 0% 0% 6% 4% 90%
200901 1-Year ARM 1% 0% 0% 13% 3% 83%
ARM - Hybrid 0% 0% 0% 6% 2% 92%
Balloon 0% 0% 0% 17% 5% 78%
FRM 15yr 0% 0% 0% 65% 3% 32%
FRM 20yr 0% 0% 0% 51% 17% 32%
FRM 30yr 0% 0% 0% 9% 7% 84%

 

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 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. © 2010 by Freddie Mac.

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.

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