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Fixed-Rate Mortgages Dominant Among Refinancing Homeowners

More Fixed-Rate Borrowers Choose Shorter Loan Terms

For Immediate Release

February 15, 2010
Contact: corprel@freddiemac.com
or (703) 903-3933

 

McLean, VA – Freddie Mac (NYSE:FRE) announced today that in the fourth quarter of 2009, refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate, according to Freddie Mac's quarterly Product Transition Report. While 30-year fixed-rate mortgages are still the most preferred product chosen for the new loan, 15-year fixed-rate mortgages gained favor among refinancers who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs. Overall, fixed-rate loans accounted for more than 95 percent of refinance loans during the quarter.

"Average interest rates fell on 30-year and 15-year fixed-rate mortgage loans in the fourth quarter to a record low in the 39-year history of Freddie Mac's Primary Mortgage Market Survey®" said Frank Nothaft, vice president and chief economist for Freddie Mac. "The lowest fixed-rate interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice.

"While homeowners are choosing the safety of fixed-rate mortgages in large numbers, at the same time many borrowers are now looking at paying down their mortgage balances faster by choosing a shorter mortgage term of 15 or 20 years instead of 30. This is consistent with the results from our fourth quarter Refinance Report, published at the end of January, which showed a record share of borrowers paying down a portion of their principal balance, that is, "cashing in" rather than "cashing out" when they refinanced their loan. When you can only earn a very low interest rate on your CD or money market accounts, and returns on other investments remain extremely uncertain, it can make sense to pay yourself 4.5 or 5 percent by eliminating some mortgage debt whether by making extra payments or going for a shorter loan term."

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
200804 1-Year ARM 1% 0% 0% 25% 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% 84%
ARM - Hybrid 0% 1% 0% 6% 2% 92%
Balloon 0% 0% 0% 17% 5% 78%
FRM 15yr 0% 0% 0% 60% 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% 14% 2% 84%
ARM - Hybrid 0% 2% 0% 8% 2% 89%
Balloon 0% 1% 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% 16% 4% 79%
ARM - Hybrid 0% 6% 0% 8% 1% 85%
Balloon 0% 4% 0% 27% 2% 68%
FRM 15yr 0% 0% 0% 62% 2% 37%
FRM 20yr 0% 0% 0% 45% 8% 47%
FRM 30yr 0% 0% 0% 13% 3% 84%
200904 1-Year ARM 2% 2% 0% 22% 7% 67%
ARM - Hybrid 0% 10% 0% 9% 1% 79%
Balloon 0% 5% 0% 28% 4% 63%
FRM 15yr 0% 0% 0% 70% 2% 28%
FRM 20yr 0% 1% 0% 55% 8% 37%
FRM 30yr 0% 0% 0% 14% 5% 80%

 

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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