Fixed-rate loans accounted for more than 95 percent of all refinance transactions in the third quarter, according to government mortgage financier Freddie Mac.
“The share of borrowers shortening their amortization terms remains high,” said Frank Nothaft, Freddie Mac VP and chief economist, in a statement.
“There is always a discount for shorter terms but the payments are often about 50 percent higher than a 30-year amortizing payment and thus are unaffordable to many homeowners. What we’re seeing now is that the level of the 15-year payment is becoming more affordable to more borrowers.”
In other words, mortgage payments for those who previously had 30-year loans weren’t so different after a refinance into a 15-year fixed loan, thanks to the huge drop in rates.
While the payment may be slightly higher, the savings over the term of the loan will be much more significant.
Year-to-date through September, the ARM share of applications was just six percent in Freddie Mac’s monthly ARM survey, which includes purchase-money as well as refinance applications.
Related: 30-year fixed mortgage rate chart