Preference For Fixed-Rate Mortgages

December 15, 2007

Fixed-rate mortgages are definitely the "loan of choice" by today’s homeowners seeking a refinance mortgage. About 85 percent of refinance mortgages in recent months have been fixed-rate loans, according to Freddie Mac, a major government-sponsored buyer of existing mortgages. Those applications include many homeowners who initially had a hybrid ARM (adjustable-rate mortgage).

"Mortgage rates on 30-year fixed-rate conventional conforming loans have become more favorable to applicants of refinance loans," Freddie Mac reported. "The difference in rate between fixed and adjustable rate loans has narrowed. Also, although the spread between the 30-year fixed-rate and 15-year fixed-rate mortgages has not moved significantly in recent months, more borrowers replaced their 15-year fixed-rate mortgages with 30-year fixed-rates when they refinanced."

The report also shows that refinancing into the 30-year fixed-rate mortgage among borrowers who originally had an ARM loan has been increasing. However, fewer borrowers who originally had a balloon mortgage are switching into a 30-year fixed loan, many opting instead for an ARM or hybrid mortgage. The proportion of borrowers who originally held 30-year fixed-rate mortgages and are now applying for a refinance mortgage of the same type has remained about the same in recent months.

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