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Fixed-Rate Mortgages Remain Choice Among Refinancing Borrowers

15-year Fixed Rate Mortgages at Highest Share Since Second Quarter 2008

For Immediate Release

November 12, 2009
Contact: corprel@freddiemac.com
or (703) 903-3933

 

McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the third quarter of 2009, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was adjustable-rate mortgage (ARM) or a fixed-rate. For the fourth consecutive quarter, more than 95 percent of prime borrowers who originally had a conventional ARM selected a new conventional fixed-rate mortgage when they refinanced, based on an analysis of loans purchased by Freddie Mac. While 30-year fixed-rate mortgages are the most preferred new product, 15-year fixed-rate mortgages gained favor among refinancers in the third quarter who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs.

"Low rates throughout all of 2009 have prompted about $1.1 trillion in refinancing activity this year, and we estimate that the borrowers who took advantage of refinancing opportunities in the first three quarters of the year will save about $10 billion in aggregate monthly payments over the first twelve months of their new loan," said Frank Nothaft, vice president and chief economist for Freddie Mac. "Over the first nine months of this year, the average interest rate offered by lenders on 30-year fixed-rate loans was 5.1 percent, on 15-year fixed-rate loans was 4.7 percent, and on 5/1 hybrid ARMs was 4.9 percent according to the Primary Mortgage Market Survey®. Because interest rates across fixed- and adjustable-rate products are similar and fixed-rate loans provide the benefit of a certain principal-and-interest payment, most borrowers have chosen fixed-rate loans.

"For borrowers who can swing the higher payments that come with shorter term mortgages, the interest savings really add up. The average fixed-rate refinance loan in the first three quarters of 2009 had a principal balance of about $225,000 and an initial interest rate of 6.25 percent. By choosing another 30-year fixed-rate mortgage, a borrower could lower their monthly payment by $160 per month and would accumulate $3,200 in equity through principal payments over the first year. In contrast, a borrower who chose a 15-year fixed-rate mortgage would have an even lower new interest rate but their monthly payment would rise by $350 per month; however, at the end of the first year they would have paid down $10,650 of the principal balance, thus building up home-equity wealth more quickly."

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
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% 65%
FRM 30yr 0% 0% 0% 6% 4% 90%
200901 1-Year ARM 1% 0% 0% 12% 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% 13% 2% 85%
ARM - Hybrid 0% 0% 0% 8% 2% 89%
Balloon 0% 0% 0% 22% 3% 75%
FRM 15yr 0% 0% 0% 63% 2% 35%
FRM 20yr 0% 0% 0% 49% 12% 38%
FRM 30yr 0% 0% 0% 11% 5% 84%
200903 1-Year ARM 0% 1% 0% 17% 6% 76%
ARM - Hybrid 0% 4% 0% 8% 1% 87%
Balloon 0% 3% 0% 30% 2% 66%
FRM 15yr 0% 0% 0% 64% 1% 34%
FRM 20yr 0% 0% 0% 47% 8% 45%
FRM 30yr 0% 0% 0% 13% 3% 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.

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