Although they remained a distinct minority, more borrowers looking to refinance their adjustable-rate mortgages during the second quarter went with another ARM loan instead of a fixed-rate mortgage, Freddie Mac reports.
About 4 percent of borrowers with 1-year ARMs stayed with that product when they refinanced during the second quarter, compared with 1 percent in the first quarter and 2 percent a year ago, Freddie Mac said.
Another 10 percent of 1-year ARM borrowers went with hybrid ARMs when they refinanced during the second quarter, compared with 8 percent in the first quarter.
Mortgage rates on 30-year fixed-rate loans went up in the second quarter to 6.4 percent, while rates on 1-year Treasury-indexed ARMs were 5.5 percent, said Amy Crews Cutts, deputy chief economist for Freddie Mac.
“While most borrowers still prefer to refinance into fixed-rate mortgage products, the widening spread between fixed- and adjustable-rate mortgages in the second quarter made ARMs a bit more attractive than they had been,” Crews Cutts said in a statement.
Since then, interest rates on conventional fixed-rate loans have fallen, while worries about credit quality have pushed rates on some nontraditional and ARM loans up. That should result in more ARM borrowers choosing fixed-rate loans when they refinance, Crews Cutts said.
“With the recent contractions in mortgage lending standards and increasing emphasis on underwriting borrowers to fully indexed rates on adjustable-rate mortgages, it is likely that we will see more demand for fixed-rate products for both new home purchases and refinance in the future,” Crews Cutts said.
The vast majority of borrowers refinancing 1-year ARM loans — 85 percent — chose fixed-rate loans during the second quarter, down from 89 percent in the first quarter. About 86 percent of those refinancing hybrid ARM loans during the second quarter chose a fixed-rate mortgage, compared with 88 percent during the first quarter.