Skip to Page Content | Skip to Site Navigation | Skip to Section Navigation

Refinancing Borrowers Move into Shorter-Term Fixed-Rate Loans

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

For Immediate Release

August 13, 2009
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the second quarter of 2009, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or fixed. Ninety-nine percent of prime borrowers who originally had a conforming ARM selected a new conforming fixed-rate mortgage when they refinanced, up slightly from a revised share of 98 percent in the first quarter. While 30-year fixed-rate mortgages tended to be the preferred new product, 15-year fixed-rate mortgages gained favor among refinancers, with roughly a 2 percentage point increase in the proportion choosing this product for original ARM borrowers and nearly a 4 percentage point increase among original fixed-rate borrowers.

“When interest rates hit very low levels for fixed-rate mortgages, borrowers often take this opportunity to lower their interest rate and shorten their loan term,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “In April mortgage rates reached new lows for both 15-year and 30-year fixed-rate loans in Freddie Mac’s Primary Mortgage Market Survey®. Many borrowers could shorten their loan terms without having a big increase in their mortgage payments, thereby building equity faster, reducing the total interest paid over the life of the loan, and ensuring their loan is largely paid off by their retirement.

“Both refinancing borrowers and families buying homes are shying away from ARMs in the current environment. During the second quarter, 5/1 hybrid ARMs carried an average rate of 4.9 percent while 30-year fixed mortgage rates were only at 5.0 percent on average in our survey. The small benefit from the lower rate is not enticing enough to cover the risk that rates will rise in the future from these historic lows.”

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.

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 Ballon3 FRM 15yr4 FRM 20yr5 FRM 30yr6
200802 1-Year ARM 3% 3% 0% 29% 7% 59%
ARM - Hybrid 0% 14% 0% 8% 4% 73%
Balloon 0% 7% 0% 18% 5% 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% 68%
FRM 15yr 0% 2% 0% 38% 5% 55%
FRM 20yr 0% 4% 0% 19% 12% 66%
FRM 30yr 0% 3% 0% 10% 4% 83%
200804 1-Year ARM 1% 0% 0% 26% 3% 69%
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% 11% 3% 85%
ARM - Hybrid 0% 1% 0% 6% 2% 92%
Balloon 0% 0% 0% 17% 5% 78%
FRM 15yr 0% 0% 0% 61% 3% 37%
FRM 20yr 0% 0% 0% 48% 16% 37%
FRM 30yr 0% 0% 0% 9% 7% 84%
200902 1-Year ARM 0% 0% 0% 12% 2% 86%
ARM - Hybrid 0% 1% 0% 8% 2% 90%
Balloon 0% 0% 0% 22% 3% 74%
FRM 15yr 0% 0% 0% 65% 2% 34%
FRM 20yr 0% 0% 0% 52% 12% 35%
FRM 30yr 0% 0% 0% 12% 5% 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. 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.

###

Back to Top