The Oldest and Most Trusted Real Estate News Magazine

Majority of Freddie Mac borrowers refinanced to fixed-rate loans in 4Q


Fixed-rate mortgages accounted for the overwhelming majority of fourth-quarter refinancing on Freddie Mac loans.

More than 95% of borrowers refinanced to a fixed-rate mortgage, with a strong trend toward shorter-term deals, according to the agency's quarterly Product Transition Report. Of the borrowers who refinanced from a 30-year FRM, almost one-third chose a 15- or 20-year loan, the highest share since the first quarter of 2004.

This trend held true throughout out all of 2010, as the largest percentage of borrowers since 2003 refinanced to a shorter term.

Freddie Mac Chief Economist and Vice President Frank Nothaft said the trends coincide with the lowest mortgage rates in several decades.

"Fixed mortgage rates continued to slide lower during the first part of the fourth quarter, reaching 4.17% for the 30-year mortgage in mid-November … the lowest fixed rates since the early 1950s," Nothaft said. "The mortgage rate on 15-year fixed was about five-eights percentage point below that on 30-year fixed during the fourth quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term."

Anthony Sanders, a professor of finance at George Mason University, said borrowers find fixed-mortgage rates attractive because they reduce risk exposure. Sanders said because an FRM does not require change for the life of the loan, it decreases the likelihood of default. This is especially true of shorter-term mortgages, he said.

Write to Christine Ricciardi.

Follow her on Twitter @HWnewbieCR.



Tags: , , , , ,

Sitemap Madbadcat Graphics