For refinancing, 30-year fixed rate is top choice

Real Estate Watch

February 16, 1997

When it comes to refinancing, that 30-year fixed-rate mortgage is looking as good as ever.

According to a study released last week by Freddie Mac, when homeowners went to refinance in 1996, they picked the traditional mortgage 61 percent of the time if they were previously in a 30-year mortgage. Another 29 percent decided to go into a 15-year product.

Freddie Mac senior economist Vassilis Lekkas said the 29 percent was the highest amount since 1993.

The monthly average for a 30-year fixed-mortgage was at its lowest in January 1996 at 7.03 percent, climbed to 8.32 in June, but settled down to 7.60 at year's end.

In general, when the cost of fixed-rate loans are low, borrowers refinancing do not choose adjustable-rate mortgages, Lekkas said, noting that last year just 11 percent of borrowers with adjustable-rate loans selected a new ARM when refinancing. That was down from 13 percent in 1995 and well below the 38 percent in 1994.

Lekkas added that in 1994 there was just more than a 3.02 percent gap between the average 30-year fixed rate and 1-year ARM. In 1996, the gap narrowed to 2.14 percent, thus making a the fixed-rate mortgage the more logical choice.

According to Freddie Mac, approximately 43 percent of the conventional mortgages originated in 1996 were refinancings, up from 35 percent in 1995. The most recent peak for refinancing was 72 percent in 1993.

Freddie Mac buys mortgages from lenders and puts them into securities that are sold to investors.

Pub Date: 2/16/97

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