Interesting article on the Fixed Rate Mortgage being the dominant choice amongst USA homebuyers. With variable being pretty popular north of the border, looks like Americans are going with a Fixed rate, maybe due to economic concerns down south. Good news for them is that more homeowners selected 15-20 year terms rather than 30 year terms, this was fuelled by discounted rates for shorter term mortgages. This should help build some equity and reduce the risk for Freddie Mac and Fanny May.
Story attached below: Fixed-Rate Mortgages Dominant Choice of Refinancing Borrowers RIS Media, May 2011 - In the first quarter of 2011, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac (OTC: FMCC) Quarterly Product Transition Report released recently. Refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate. News Facts • An increasing share of refinancing borrowers chose to shorten their loan terms during the first quarter. Of borrowers who paid off a 30-year fixed-rate loan, 34 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004. • Eighty-four percent of borrowers who had a hybrid ARM chose to refinance into a fixed-rate product during the first quarter, continuing a pattern of the past few years of borrowers revealing a strong preference for fixed-rate over variable-pay contracts. Quotes Attributed to Frank Nothaft, Freddie Mac vice president and chief economist • “Fixed mortgage rates averaged 4.85 percent for 30-year loans and 4.12 percent for 15-year product during the first quarter in Freddie Mac’s Primary Mortgage Market Survey®, well below long-term averages. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 6 percent at the end of 2010. It’s no wonder we continue to see strong refinance activity into fixed-rate loans. • “The mortgage rate on 15-year fixed was about three-fourths percentage point below that on 30-year fixed during the first quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term. In the first quarter we saw the largest share of borrowers shortening their term while refinancing in seven years.” Asif Khan, Sales RepresentativeMember of Re/Max Hall of Fame
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