Demand picks up in 3rd quarter for 30-year mortgages


November 17, 1996

A study issued last week by Freddie Mac shows a sharp third-quarter increase in the demand for 30-year fixed-rate mortgages -- and a clear move away from 15-year FRMs -- by people refinancing their loans.

The study was based on mortgages for which the Federal Home Mortgage Corp. purchased both the original and refinancing loans obtained by homeowners. The change was linked to rising interest rates.

The survey found 63 percent of those who refinanced 30-year fixed-rate mortgages chose to stay with 30-year loans, up from 53 percent in the second quarter. In contrast, 22 percent of borrowers with 15-year FRMs stayed with that term in refinancing, down from 33 percent in the second quarter.

"Mortgage rates began to increase noticeably in May, June and July, the period that drove refinance activity in the third quarter," said Vasilis Lekkas, Freddie Mac senior economist. "Mortgage rates have moderated in more recent months, so we expect to see a slight return to 15-year FRMs in the fourth quarter."

Lekkas said there was an across-the-board increase in demand for 30-year FRMs by borrowers refinancing mortgage loans. For example, 57 percent of borrowers refinancing one-year adjustable-rate mortgages chose 30-year FRMs in the period, up from 43 percent in the second quarter.

Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to create a continuous flow of funds to mortgage lenders. Freddie Mac purchases mortgages from lenders and packages them into securities sold to investors.

Pub Date: 11/17/96

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