Freddie Mac: 15-year Fixed Mortgages Gain Favor

MortgagesThe adjustable rate mortgage is falling increasingly out of favor, with fixed-rate loans accounting for more than 95 percent of refinancing deals during the fourth quarter, Freddie Mac said today.
The 30-year fixed-rate product remains the most preferred, but 15-year fixed-rate mortgages are gaining ground among refinancers who have previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs, according to Freddie Mac’s quarterly Product Transition Report.
More borrowers are looking to reduce their mortgage balances with shorter-term products, Freddie Mac reported.
“While homeowners are choosing the safety of fixed-rate mortgages in large numbers, at the same time many borrowers are now looking at paying down their mortgage balances faster by choosing a shorter mortgage term of 15 or 20 years instead of 30, which is why the discussion of what the difference is between 15 vs 30 year mortgages still continues” said Frank Nothaft, vice president and chief economist for Freddie Mac.
He said this finding reflects an earlier report that found a record share of borrowers paying down portions of their principal balance, instead of “cashing out” when refinancing.
The popularity of fixed-rate products in the fourth quarter was also fueled by historically low interest rates.
Last week, Freddie Mac reported that the 30-year fixed rate on average had slipped under 5 percent again, down to 4.97 percent for the week ending Feb. 11, 2010. The 15-year fixed rate mortogage averaged 4.34 percent, down from the previous week when it averaged 4.40 percent.
“When you can only earn a very low interest rate on your CD or money market accounts, and returns on other investments remain extremely uncertain, it can make sense to pay yourself 4.5 or 5 percent by eliminating some mortgage debt whether by making extra payments or going for a shorter loan term,” Nothaft said.
Freddie Mac’s estimates come from a sample of properties funded by the government sponsored enterprise. Transactions are also screened to verify that the latest loan is for refinance rather than for home purchase.
Freddie Mac buys mortgages on the secondary market, and then sells them as mortgage-backed securities to investors on the open market. It was created by Congress to inject liquidity and stability in the housing finance market.

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