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As borrowers refinance their home loans, they are ""overwhelmingly"" choosing fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate, ""Freddie Mac"":http://www.freddiemac.com/news/archives/corporate/2010/20100215_product_transition.html?attr=Corp021510 said in a[IMAGE]report issued Monday. Overall, fixed-rate loans accounted for more than 95 percent of refinances during the fourth quarter of last year.
That probably comes as no surprise â€" with long-term fixed rates still hovering around the five percent threshold and the spreads between fixed and ARMs continuing to narrow, homeowners see the low fixed-rate as the preferred option over an adjustable rate that's going to jump in three years and dramatically raise the borrower's monthly obligation.
What is surprising, though, is that more borrowers are going with a shorter term loan to get out from under their mortgage debt faster â€" a consumer trend that's been progressively developing since the credit crunch set in. While 30-year fixed-rate mortgages are still the most
[COLUMN_BREAK]preferred product, Freddie Mac said, 15-year fixed-rate mortgages are gaining favor among refinancers who previously held 30-year fixed-rate mortgages, balloon mortgages, and ARMs.
""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,"" said Frank Nothaft, Freddie Mac's chief economist.
Nothaft's conclusions are consistent with the results of the GSE's ""fourth quarter Refinance Report"":http://dsnews.comarticles/record-number-of-borrowers-who-refinanced-in-q4-lowered-principal-balance-freddie-mac-2010-01-29, which showed a record share of borrowers paying down their principal balance â€" that is, ""cashing in"" rather than ""cashing out"" when they refinanced their loan.
""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 explained.
Freddie Mac's market data shows that average interest rates on both 30-year and 15-year fixed-rate home loans fell in the fourth quarter to their lowest mark in the 39-year history of the GSE's mortgage interest rate study.
""The lowest fixed-rate interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice,"" Nothaft said.
