According to a recent announcement by Freddie Mac, during the second quarter of 2009, refinancing borrowers overwhelmingly chose fixed-rate loans, despite of whether their original loan was an adjustable-rate mortgage (ARM) or fixed.
99% of major borrowers whose original loan was ARM now selected a new conforming fixed-rate mortgage. 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.
Both refinancing borrowers and families buying homes are getting away from ARMs in the current environment. During this period, the 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. 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.
Read more about the latest mortgage loan modification trends here.
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