Freddie: Refinancing Homeowners Prefer Fixed-Rate Loans

More homeowners and mortgage borrowers who chose to refinance their loans opted for the fixed-rate loan instead of adjustable-rate mortgages (ARMs) over the second quarter this year, according to a ""Freddie Mac"":http://www.freddiemac.com/ quarterly report released Monday. The GSE held that moves toward 30- and 15-year fixed rate loans accounted for about 95 percent of refinance applications.

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Refinancing borrowers nodded toward these fixed-rate loans in increasing numbers, according to the report, with 55 percent making the transition from a hybrid ARM to a fixed-rate loan over the last quarter. Forty-five percent of borrowers decided to stay with the same loans, while 37 percent of those paying off a 30-year fixed-rate loan switched to 15- and 20-year loans - a record high since 2003.

Freddie said that the share of refinancing activity jumped highest in the transition from hybrid ARMs to another in the same lending category, making it the biggest leap since the second quarter of 2004.

These numbers came on the heels of a ""Bureau of Economic Analysis"":http://www.bea.gov/ report, according to Freddie, which it claimed to report that coupons for single-family loans hit 5.3 percent on average during the second quarter this year.

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It attributed consumer moves toward fixed-rate loans to the coupon rates.

In a ""statement"":http://freddiemac.mediaroom.com/index.php?s=12329&item=49309, Frank Nothaft, the GSE's VP and chief economist, said that 30-year fixed-rate mortgages leveled out at 4.65 percent over the quarter, while 15-year loans trotted along at 3.84 percent. He added that these numbers fell ""well below"" averages over several quarters.

""Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second quarter,"" he said. ""For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.

The initial interest rate on a 5/1 hybrid ARM was about 1.2 percentage points lower than on a 30-year fixed-rate loan,"" Nothaft added. ""For borrowers who plan to remain in their current home for only a few years, the hybrid ARM allows for even a greater interest-rate savings.""

Freddie's ""Quarterly Production Transition Report"":http://www.freddiemac.com/news/finance/ closely follows spikes in mortgage applications and new lows for rates from last week.

The ""Mortgage Bankers Association"":http://mbaa.org/default.htm and Freddie said that newly refinancing borrowers, prompted by worries over an ailing economy, scaled up the applications and rates.

Chad Wandler, a spokesperson for the GSE, says rates for fixed-rate loans have never been lower.

""As 10-year Treasury yields have declined, and with the Fed's signally it will keep interest rates low until 2013,"" he tells _MReport_. ""We're now approaching mortgage rates not seen since the 1950's with the 30-year fixed setting a record low for 2011 last week, and the 15-year fixed setting a new all time record at 3.50 percent.""