With mortgage rates at record lows, borrowers these days clearly favor fixed-rate mortgages, and many are choosing shorter terms than they had before.
Of those who refinanced during the last quarter of 2011, an increasing number of them opted for a shorter repayment term than the traditional 30-year mortgage. In fact, 43 percent chose a 15- or 20-year amortization period, the highest share since early 2003. And, 95 percent of all refinance loans were fixed-rate regardless of whether the borrower's original loan had a fixed- or adjustable rate, according to Freddie Mac.
Frank Nothaft, Freddie Mac's vice president and chief economist, attributed the high interest in shorter-terms to the incredibly low rates that are now available on those mortgages. For example, the initial rate on a 5/1 adjustable-rate mortgage was about 1.1 percent lower than on a 30-year fixed-rate mortgage, which averaged just under 4 percent this week. With rates this low the market should be in the midst of a refi boom, but it's not because of stricter underwriting guidelines, not to mention that so many homeowners can't refinance because their mortgage exceeds the value of their house.
