More than 99 percent of prime borrowers who originally had conforming adjustable-rate mortgages chose fixed-rate loans when they refinanced during the first quarter, according to a report from Freddie Mac.
That’s up slightly from the just-below 99 percent share in the fourth quarter; nearly 100 percent of borrowers who originally had fixed-rate loans refinanced into similar products as well.
“Whether for refinance as our report shows or for home purchase, borrowers are shying away from ARM loans in the present environment,” said Frank Nothaft, vice president and chief economist for Freddie Mac, in a release.
“The lowest fixed mortgage rates in 50 years are attractive by themselves, and when we look at average ARM interest rates that are nearly the same as the fixed rates being offered, it is easy to see why borrowers are making the choice for fixed-rate mortgages.
Initial interest rates on five-year ARMs were pricing as much as half a percentage point higher than the average rate for a 30-year fixed, while rates on one-year ARMs were only offered at a discount of about an eighth to a quarter of a point.
That simply wasn’t enough for borrowers who realized the risk of an interest rate reset could land them in hot water in no time.
The 30-year fixed was far and above the most popular loan program, followed by the 15-year fixed and 20-year fixed.