Homeowners continue to flee to the safety of fixed rate mortgages, according to recent data from housing finance company Freddie Mac. And with interest rates remaining low, borrowers are also getting into shorter-term fixed rate loans.
The Freddie Mac survey showed that 95 percent of refinance loans in the second quarter of 2011 were fixed rate mortgages, a major shift from the housing boom days, when adjustable rate mortgages (ARMs) were extremely popular. A full 55 percent of those with hybrid ARMs opted for the security of a fixed rate loan during the same time.
What’s more, among those who refinanced a 30-year fixed rate loan in the second quarter, 37 percent chose a shorter term of either 15 or 20 years. That’s the largest share since the third quarter of 2003, a sign that many borrowers are taking advantage of the lowest rates with and trying to pay off their mortgages, rather than squeeze out their equity.
“Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second quarter,” Freddie Mac chief economist Frank Nothaft said. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.”
Interest rates on 30-year fixed rate mortgages averaged 4.65 percent, excluding points and 15-year fixed rate loans carried an average of 3.84 percent, “well below long-term averages,” Frank Nothaft added. “…It’s no wonder we continue to see strong refinance activity into fixed rate loans.”
Refinance loans have made up most of the mortgage market business in the post-boom doldrums. The survey found that 70 percent of all loan applications during the second quarter were refinance requests. The low rates have made that a no-brainer for qualified homeowners, but the dismally low home-purchase applications are a sign that the housing market is not yet in recovery.