Perhaps not all that surprisingly, Freddie Mac’s quarterly Product Transition Report shows that “refinancing borrowers overwhelmingly chose fixed rate loans”[1]. The GSE reports that these savvy borrowers – 95% of all borrowers overall – selected fixed rates “regardless of whether their original loan was an adjustable rate mortgage (ARM) or fixed rate.” Given the pain that a lot of homeowners have been through with their ARMs – and the highly publicized nature of that pain in many cases – this seems like kind of a no-brainer. However, it is nice to see that homeowners are sticking with common sense in the third quarter of 2010 and not borrowing on flexible rates when the fixed ones are so low.
In addition to the news on fixed rates, the report also indicated that borrowers who have previously had shorter-term, fixed rate mortgages are sticking with those short time periods. There is just something about not waiting 30 years to own your house and paying for it, oh, twice instead of three or four times in the process that is really appealing these days. While the classic 30-year fixed still dominates the market among borrowers who had that product before or borrowers that had an ARM, those who have had experience with the shorter-term mortgages are staying in the 15-to-20 year range when possible.
Freddie Mac’s vice president and chief economist, Frank Nothaft, says that “It’s no wonder borrowers are attracted to fixed-rate loans,” pointing out that currently 30-year fixed-rate mortgage rates are “at levels we hadn’t seen since the early 1950’s. He added that the 15-year payment is becoming “more affordable to many borrowers,” which could mean that more homeowners will own their homes sooner in the coming years thanks to that product.
Do you think a shorter-term loan is better than a 30- or 40-year fixed?
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[1]http://nationalmortgageprofessional.com/news21864/freddie-mac-finds-fixed-rate-predominant-choice-refis
