Magazine article American Banker

30-Year Fixed Rates' Share of Refi Pie Growing

Magazine article American Banker

30-Year Fixed Rates' Share of Refi Pie Growing

Article excerpt

A much higher percentage of refinancing homeowners chose 30-year fixed rate mortgages in 1995 as the gap between adjustable and fixed rates narrowed.

Last year, 68% of homeowners who refinanced their 30-year fixed-rate mortgages took new loans of the same length, according to a study conducted by the Federal National Mortgage Association, informally Freddie Mac. This is up considerably from the 1994 figure of 54%.

"What we saw in 1995, particularly in the fourth quarter, was borrowers taking advantage of significant decreases in the 30-year fixed mortgage rate," said Vassilis Lekkas, senior economist at the Federal Home Loan Mortgage Corp. In the fourth quarter of 1995, 77% of refinancing borrowers with 30-year fixed-rate mortgages refinanced into the same type of loan, up from 52% a year ago.

Most of this volume increase was snatched from adjustable rate mortgages. Although 9% of those refinancing their 30-year fixed-rate mortgages switched to an adjustable-rate loan in 1994, only 2% made that choice in 1995.

And 59% of consumers refinancing their adjustable-rate mortgages last year chose 30-year fixed-rate mortgages - compared with 41% in 1994.

"Rates are historically low right now, and its best for consumers to fix in that rate," said William Wilson, vice president and economist with Detroit-based Comerica Mortgage. "There's a risk in jumping into that ARM. Rates could be a lot higher in a year or two."

The uncertainty generated by an election year, combined with past federal budget problems and corporate downsizing may insure that consumers continue to choose long-term fixed-rate mortgages when they refinance, Mr. …

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