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Freddie Mac: 27% of Borrowers Refinanced into Shorter Term
Freddie Mac borrowers who refinanced
in the fourth quarter of 2012 overwhelmingly picked a fixed rate mortgage (FRM)
and 27 percent of them chose to shorten their loan term. Freddie Mac's Quarterly Product Transition
Report released Tuesday said 69 percent of borrowers kept the same term as the
loan that they had paid off; 4 percent chose to lengthen their loan term, primarily
those with 20 year terms, 22 percent of whom refinanced to 30 year mortgages.
More than 95 percent of refinancing
borrowers chose a fixed rate loan as did an even larger percentage of borrowers
who already had an FRM. Only 2 percent
of borrowers with 15 year or 30 year FRM chose a hybrid adjustable rate
mortgage (ARM). Among borrowers with ARMs
17 percent went from one hybrid loan to another and 18 percent of those with 1-year ARMs moved to a hybrid. Virtually
no one refinanced into a 1-year ARM but 83 percent of 1-year ARMs were
converted into FRM, the highest percentage since the second quarter of 2010.
Those borrowers who refinanced under
the Home Affordable Refinance Program (HARP) were more likely to take out a
long-term, fixed-rate mortgage than those who refinanced through a traditional
program. For example, of HARP borrowers who were refinancing out of an ARM,
more than 95 percent chose a fixed-rate mortgage; in contrast, of borrowers
that had an ARM but did not refinance through HARP, more than one-third opted
for another ARM.
Frank Nothaft, Freddie Mac vice
president and chief economist said, "Fixed mortgage rates averaged 3.36
percent for 30-year loans and 2.67 percent for 15-year product during the
fourth quarter in Freddie Mac's Primary Mortgage Market Survey®, the lowest
quarterly averages recorded in our survey. For borrowers motivated to refinance
by low fixed-rates, they could obtain even lower rates by shortening their
term. Further, a shorter-term, fully amortizing loan reduces the loan balance
faster and builds home equity sooner.
Based on 2012 calendar year data for
12 large metropolitan areas, borrowers who lived in lower-priced areas were
generally more likely to shorten their term than those living in very high-cost
housing markets. For the U.S. as a whole, 29 percent of borrowers shortened
their loan term when refinancing but 43 percent of borrowers in the Dallas
metropolitan area shortened their term while only 14 percent of those in the
San Francisco metropolitan area did so.
Nothaft said, "Borrowers with
smaller loan balances can shorten their loan term when refinancing with smaller
dollar increases in their monthly payment than borrowers with large loan
balances. That's an important reason why a larger percent of borrowers in a low
housing cost market shorten their term when compared to borrowers in very high
cost markets."
Transition data 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. Some loan
products, such as 1-year ARMs and balloons, are based on a small number of
transactions.
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Freddie Mac: 27% of Borrowers Refinanced into Shorter Term
Freddie Mac borrowers who refinanced
in the fourth quarter of 2012 overwhelmingly picked a fixed rate mortgage (FRM)
and 27 percent of them chose to shorten their loan term. Freddie Mac's Quarterly Product Transition
Report released Tuesday said 69 percent of borrowers kept the same term as the
loan that they had paid off; 4 percent chose to lengthen their loan term, primarily
those with 20 year terms, 22 percent of whom refinanced to 30 year mortgages.
More than 95 percent of refinancing
borrowers chose a fixed rate loan as did an even larger percentage of borrowers
who already had an FRM. Only 2 percent
of borrowers with 15 year or 30 year FRM chose a hybrid adjustable rate
mortgage (ARM). Among borrowers with ARMs
17 percent went from one hybrid loan to another and 18 percent of those with 1-year ARMs moved to a hybrid. Virtually
no one refinanced into a 1-year ARM but 83 percent of 1-year ARMs were
converted into FRM, the highest percentage since the second quarter of 2010.
Those borrowers who refinanced under
the Home Affordable Refinance Program (HARP) were more likely to take out a
long-term, fixed-rate mortgage than those who refinanced through a traditional
program. For example, of HARP borrowers who were refinancing out of an ARM,
more than 95 percent chose a fixed-rate mortgage; in contrast, of borrowers
that had an ARM but did not refinance through HARP, more than one-third opted
for another ARM.
Frank Nothaft, Freddie Mac vice
president and chief economist said, "Fixed mortgage rates averaged 3.36
percent for 30-year loans and 2.67 percent for 15-year product during the
fourth quarter in Freddie Mac's Primary Mortgage Market Survey®, the lowest
quarterly averages recorded in our survey. For borrowers motivated to refinance
by low fixed-rates, they could obtain even lower rates by shortening their
term. Further, a shorter-term, fully amortizing loan reduces the loan balance
faster and builds home equity sooner.
Based on 2012 calendar year data for
12 large metropolitan areas, borrowers who lived in lower-priced areas were
generally more likely to shorten their term than those living in very high-cost
housing markets. For the U.S. as a whole, 29 percent of borrowers shortened
their loan term when refinancing but 43 percent of borrowers in the Dallas
metropolitan area shortened their term while only 14 percent of those in the
San Francisco metropolitan area did so.
Nothaft said, "Borrowers with
smaller loan balances can shorten their loan term when refinancing with smaller
dollar increases in their monthly payment than borrowers with large loan
balances. That's an important reason why a larger percent of borrowers in a low
housing cost market shorten their term when compared to borrowers in very high
cost markets."
Transition data 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. Some loan
products, such as 1-year ARMs and balloons, are based on a small number of
transactions.
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