Fixed Mortgages Continue to Dominate Refinancing

August 13, 2009 No Comments »

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A staggering 99 percent of prime borrowers who originally had conforming loan ARMs chose fixed-rate mortgages when refinancing during the second quarter, according to Freddie Mac.

That’s up from a revised 98 percent in the first quarter; the classic 30-year fixed continues to be the hot product for homeowners.

The 15-year fixed also saw some healthy gains, with a roughly two-percent increase for original ARM-borrowers and a near four percent increase among original fixed-rate borrowers.

“When interest rates hit very low levels for fixed-rate mortgages, borrowers often take this opportunity to lower their interest rate and shorten their loan term,” said Frank Nothaft, vice president and chief economist for Freddie Mac, in a statement.

“Many borrowers could shorten their loan terms without having a big increase in their mortgage payments, thereby building equity faster, reducing the total interest paid over the life of the loan, and ensuring their loan is largely paid off by their retirement.”

Homeowners have been steering clear of adjustable-rate mortgages for a while now, mainly because the pricing is just no good.

During the last quarter, the 5/1 hybrid ARM carried an average rate of 4.90 percent, while the 30-year fixed was just 10 basis points higher at 5.00 percent even.

Clearly it doesn’t make sense for borrowers to risk exposing themselves to an interest rate increase in coming years at that paltry discount.

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