Homeowners find ways to save money through refinancing
Refinancers prefer fixed-rate loans
Homeowners opting to refinance existing mortgages in the fourth quarter (Q4) of 2012 overwhelmingly chose fixed-rate mortgages, Freddie Mac said in a recent report.
According to Freddie Mac’s most recent Quarterly Product Transition Report, more than 95 percent of homeowners refinancing existing mortgages in Q4 opted for a fixed-rate mortgage for their new loan..
Even the vast majority (83 percent) of those refinancing adjustable-rate mortgages (ARMs) chose fixed-rate loans. That percent jumped even higher – to 95 percent – when talking about homeowners who refinanced from an ARM under the Home Affordable Refinance Program (HARP).
“Fixed mortgage rates averaged 3.36 percent for 30-year loans and 2.67 percent for 15-year product during the fourth quarter in Freddie Mac’s Primary Mortgage Market Survey®, the lowest quarterly averages recorded in our survey,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Nothaft continued: “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”
More than a quarter shorten loan terms
According to Freddie Mac, 27 percent of refinancing borrowers in Q4 opted to shorten the loan term on their mortgage.
Just 4 percent opted to lengthen their loan term, while 69 percent opted to go with the same loan term as their original mortgage.
Those living in more affordable metropolitan areas were more likely to shorten their loan terms. For example, 43 percent of Dallas metropolitan area refinancers shortened their term, while 14 percent of refinancers in the San Francisco metropolitan area did so.
“Borrowers with smaller loan balances can shorten their loan term when refinancing with smaller dollar increases in their monthly payment than borrowers with large loan balances,” Nothaft said.
“That’s an important reason why a larger percent of borrowers in a low housing cost market shorten their term when compared to borrowers in very high cost markets.”