In the third quarter of 2012, 29 percent of borrowers that refinanced an existing mortgage chose to shorten their loan term, based on the Freddie Mac Quarterly Product Transition Report released today. Further, refinancing borrowers clearly preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate.
Of borrowers who refinanced during the third quarter of 2012, 29 percent reduced their loan term, while 68 percent of borrowers kept the same term as the loan that they had paid off; three percent chose to lengthen their loan term.
More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless what the original loan product had been. For example, 82 percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the third quarter, the highest share since the second quarter of 2010, while the remaining 18 percent chose to refinance back into a hybrid ARM.
Those borrowers who refinanced under the Home Affordable Refinance Program (HARP) were more likely to take out a long-term, fixed-rate mortgage. For example, 25 percent of HARP borrowers shortened their loan term when they refinanced during the third quarter, compared with 31 percent of borrowers who refinanced outside of HARP. Further, of those borrowers who were refinancing out of an ARM, if they refinanced under the HARP program, then more than 95 percent chose a fixed-rate mortgage; in contrast, of borrowers that had an ARM but did not refinance through HARP, about one-half opted for another hybrid ARM.
Source: Freddie Mac