Freddie Mac Refi Data Shows Continued Migration To 15yr Term

by devteam November 14th, 2012 | Share

Freddie Mac reported on Tuesday thatrnnearly a third of the borrowers who refinanced their loans in the third quarterrnchose new loans with a shorter maturity. rnTwenty-nine percent of all refinancing borrowers chose a shorter term,rnbut borrowers who refinanced through the Home Affordable Refinance Program (HARP)rnwere actually less likely to shorten their loan term than other borrowers.  Despite incentives to do so, only 25 percentrnof HARP borrowers chose to reduce the length of their mortgage compared to 31rnpercent of borrowers in non-HARP Freddie Mac programs. Only 3 percent of allrnborrowers chose to lengthen their loan’s term. </p

With rates so low there is little tornattract refinancers to adjustable rate mortgages (ARM) and 95 percent of allrnrefinancing borrowers did opt for a fixed rate product.  For example, 82 percent of borrowers who hadrna hybrid ARM chose a fixed-rate mortgage (FRM) during the third quarter, thernhighest share since the second quarter of 2010, while the remaining 18 percentrnchose to refinance back into a hybrid ARM.   Fifty-four percent ofrnborrowers leaving their one year ARM behind took out a 15-year FRM, 23 percentrnchoose a 30-year FRM and 19 percent went into a hybrid; none chose another 1-yearrnARM.   Sixty-seven percent of borrowers withrn30-year fixed rate mortgages (FRM) refinanced into the same type of loan. </p

HARP borrowers also differentiatedrnthemselves from other borrowers in the type of loan they took.  More than 95 percent of HARP borrowers withrnan existing ARM chose an FRM as their new loan compared to only about half ofrnnon-HARP borrowers with an ARM.</p

Frank Nothaft, Freddie Mac vicernpresident and chief economist said, “Compared to a 30-year fixed-rate mortgage,rnthe interest rate on a 15-year fixed was about 0.7 percentage points lowerrnduring the third quarter. For borrowers motivated to refinance by lowrnfixed-rates, they could obtain even lower rates by shortening their term.rnFurther, a shorter-term, fully amortizing loan reduces the loan balance fasterrnand builds home equity sooner. </p

Information on refinancing come fromrna sample of properties on which Freddie Mac has funded at least two successivernloans and the latest loan is for refinance rather than for home purchase. Somernloan products, such as 1-year ARMs and balloons, are based on a small number ofrntransactions.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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