Loans Expert

Homeowners who refinanced during the fourth quarter “overwhelmingly” chose fixed-rate loans, regardless of whether their original loan had a fixed or adjusted rate, and shorter-term mortgages gained some favor, Freddie Mac (FRE) said.

More than 95% of refinanced loans during the quarter were fixed-rate, as interest rates on such mortgages fell to record lows in the 39-year history of Freddie’s Primary Mortgage Survey.

Thirty-year loans are still the preference for new mortgages, but Freddie Chief Economist Frank Nothaft noted that “many borrowers” are choosing shorter- term mortgages–15 or 20 years–instead of 30 as they look to pay down their balances faster. Since the global recession hit, consumers have paid down debt in general at higher-than-usual rates.

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

Of refinancers who had 30-year fixed-rate loans, 90% stuck with them, while 4% switched to 20-year and 6% switched to 15-year fixed-rates, according to data from Freddie. Of refinancers who had 20-year loans, 64% changed to 30-year mortgages, 13% stuck with a 20-year, and 22% cut down to a 15-year loan. Of those with 15-year notes who refinanced, 58% chose a 30-year loan, 4% switched to a 20-year, and 38% did another 15-year one.

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Tags: Loans, Refinance Home Loans