(TheNicheReport) -- A recent report published by government-sponsored mortgage enterprise Freddie Mac indicates that the great majority of refinance transactions are of the fixed-rate variety. Despite the very low interest rates currently found in many Adjustable Rate Mortgages (ARMs), when it comes to refinancing an existing mortgage borrowers are overwhelmingly choosing fixed-rate products.
The report by Freddie Mac looked at data collected during the first quarter of 2012. The percentage of fixed-rate mortgage refinances closed in the United States during the period was 95 percent. From that figure, 68 percent of borrowers who were paying for a hybrid ARM loan switched to the safety of a traditional fixed-rate product. Hybrid and option ARMs were very popular during the housing bonanza of the early 21st century, and they were a staple of subprime mortgage lending. Since the meltdown of the credit markets in 2008, borrowers have mostly stayed away from those ARMs, instead opting for the benchmark 30-year fixed rate mortgage, and in some cases choosing 15-year terms.
Thirty-one percent of the refinance transactions that closed in the first three months of the year involved term reduction from 30 percent down to 20, and sometimes 15, percent. Sixty-six percent of borrowers took advantage of better rates, but stayed with the same term.
The attractive low rates averaged 3.92 Annual Percentage Rates (APRs) for the benchmark 30-year fixed-rate mortgage. In the case of 15-year home loans, the average APR was 3.19 percent, a historical low. This low APR has prompted a higher percentage of applicants to look into shorter-term home loans. There is an additional incentive to borrowers who choose a shorter term under the Home Affordable Refinance Program (HARP) to rescue their homes from foreclosure: Some transaction fees are also waived.
Another trend observed in the report was that although recent economic reports in the United States have been positive, the credit crisis in the Eurozone has investors worried. As a result, fixed rates have been kept at some of their lowest levels. The Federal Reserve Bank also has Operation Twist in place to keep Treasury bond yields low enough to stimulate mortgage lending and help the housing market.
The above-mentioned data comes from the Primary Mortgage Market Survey, a weekly assessment of rates, points, and home lending product trends observed in the United States. The data collected is based on conventional and conforming mortgages that enjoy first-lien position and loan-to-value (LTV) ratio of 80 percent. This survey has been conducted by Freddie Mac since 1971, and it looks at home loans originated by major banks, mortgage brokerages and credit unions.