Ninety-five percent of homeowners who refinanced through Freddie Mac in the second quarter of 2012 chose a fixed rate mortgage (FRM) according to the company's Quarterly Product Transition Report released on Tuesday.  Freddie Mac tracks a sample of properties on which it has funded at least two successive loans, the most of recent of which is for refinancing.  Refinancing represented an average of 77 percent of all loan activity in Freddie Mac's monthly survey.

The vast majority of homeowners are refinancing old FRM into newer ones and 81 percent of borrowers with a hybrid adjustable rate mortgages (ARMs) also chose a fixed rate loan.  The 19 percent of hybrid loans arranged during the period were all taken by people who previously had such loans. ARMs for both purchase and refinance averaged only 6 percent of Freddie Mac's business during the period.

Thirty percent of borrowers who refinanced during the second quarter opted for a mortgage with a shorter loan term than the one they were paying off while 67 percent took out a loan with the same term.   Borrowers who had short term FRMs largely stayed with that category.  Eighty-six percent of those with 15-year FRM refinanced into another one and 61 percent of those with an old 20-year FRM moved to a 15-year while 9 percent stayed with the 20 year. Eleven percent of 15 year loans and 29 percent of 20 year FRM were refinanced into loans with 30 year terms.  

Borrowers who refinanced under the Home Affordable Refinance Program (HARP) were more likely to take out a long-term, fixed-rate mortgage. For example, 25 percent of HARP borrowers shortened their loan term when they refinanced during the second quarter, compared with 30 percent of borrowers who refinanced outside of HARP. Further, 95 percent of borrowers who were refinancing out of an ARM under the HARP program chose a fixed-rate mortgage. In contrast, borrowers who had an ARM, but did not refinance through HARP, about one-half opted for another hybrid ARM.

Frank Nothaft, Freddie Mac vice president and chief economist commented that, "Fixed mortgage rates averaged 3.79 percent for 30-year loans and 3.04 percent for 15-year product during the second quarter in Freddie Mac's Primary Mortgage Market Survey®, well below long-term averages and the lowest quarterly averages recorded in our survey. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.0 percent during the second quarter of 2012. It's no wonder we continue to see strong refinance activity into fixed-rate loans.