Loans Expert

The once popular adjustable-rate mortgage has fallen out of favor with borrowers, and more homeowners are working faster to whittle down their mortgage debt.

A quarterly Freddie Mac report on refinancing activity showed fixed-rate loans were overwhelmingly preferred by borrowers, with 95 percent of all refinancings being a fixed-rate product. Freddie Mac said a fixed-rate loan was the preferred choice, regardless of whether the borrower’s original loan was an ARM or fixed.

“The lowest fixed-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,” said Freddie Mac chief economist Frank Nothaft.

Freddie Mac doesn’t break down loan preferences by state, but Arizona was quite possibly the epicenter of ARMs before the housing market crashed. ARMs with little or no down payments helped to fuel the housing crash and record wave of foreclosures.

While a 30-year fixed-rate mortgage was the most popular refinance choice in the fourth quarter, 15-year fixed-rate mortgages also attracted more borrowers, as more homeowners chose shorter terms to pay down their mortgage balance faster.

Of those homeowners refinancing last quarter, a record number chose to take out a mortgage in an amount that was smaller than the mortgage amount they were refinancing — a trend toward “cashing in” versus “cashing out,” or choosing not to tap into home equity.

“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 percent or 5 percent by eliminating some mortgage debt, whether by making extra payments or going for a shorter loan term,” says Nothaft.

Fixed-rate mortgages in the fourth quarter averaged the lowest percentage rates in the 39 years that Freddie Mac has been tracking them.

Related posts:

• Home Refinancers In 4Q Consider Shorter-Term Loans – Freddie
• Rates on 30-year home loans fall to 4.93 pct
• Rates on 30-year home loans fall to 5.06 percent
• Rates on 30-year home loans rise to 5.05%
• Rates on 30-year home loans rise to 5.21 pct

Tags: home loans