BORROWERS INCREASINGLY PREFER 30-YEAR FIXED-RATE MORTGAGE OVER OTHER PRODUCTS WHEN REFINANCING

McLean, VA  –  Freddie Mac announced today that its quarterly refinancing study for the fourth quarter of 1999 shows the movement into the 30-year fixed-rate mortgage (FRM) rose in popularity from the third quarter 1999 among other products surveyed.

The study also found that 65 percent of borrowers originally holding 30-year fixed-rate mortgages stayed with the same product, compared to 54 percent in the third quarter of 1999. Additionally, 29 percent of borrowers originally holding 30-year FRMs decided to refinance into 15-year loans, down from 34 percent in the third quarter 1999. Of borrowers refinancing 15-year FRMs during the fourth quarter 1999, 63 percent opted to stay with the same product, a slightly smaller amount than a revised 66 percent in the third quarter, while 32 percent refinanced into a 30-year product, up from 27 percent in the previous quarter.

“Since mortgage rates have risen from the record lows of 1998, homeowners opted to refinance into the stability of longer-term fixed-rate mortgages,” said Vassilis Lekkas, principal economist for Freddie Mac. “And fearing mortgage rates would continue rising, refinancers decided to switch into fixed-rate products, primarily the 30-year fixed-rate mortgage, in 1999’s last quarter.

“As we go into the first quarter of 2000 with fixed-rate mortgages higher than they have been in the last few years, we expect refinances to swing a little more towards ARMs because of affordability.”

Borrowers who originally held adjustable rate mortgages (ARMs) continued to prefer the 30-year FRM over other products when they refinanced, with 63 percent doing so during the fourth quarter, considerably more than the 49 percent seen in the third quarter of 1999.

Annually, borrowers originally holding 30-year FRMs refinanced back into the same product 59 percent of the time, while opting for a 15-year FRM 31 percent of the time, and a 1-year ARM 9 percent of the time. Those originally holding a 15-year FRM refinanced back into a 15-year FRM in 72 percent of the transactions, while choosing a 30-year FRM in 23 percent of the deals; only 3 percent chose an ARM. The survey also showed that 61 percent of homeowners who refinanced an ARM took out a 30-year FRM its place, while 27 percent chose a 15-year FRM, and 8 percent invested in another 1-year ARM.

According to Freddie Mac statistics, approximately 22 percent of conventional mortgage applications in the fourth quarter of 1999 were for refinancing, unchanged from the third quarter of the same year. In the fourth quarter of 1998, nearly 60 percent of conventional applications were for refinance.

The Freddie Mac study, which looks at loans homeowners choose when refinancing, is based on properties for which Freddie Mac purchased both the original and new loans.

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases mortgages from lenders and packages them into securities that are sold to investors. Over the years, Freddie Mac has opened the doors for one in six homebuyers and two million renters across America.

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