news-record.com

Homeowners seeking to refinance their mortgage are choosing a fixed-rate loan, as opposed to an adjustable-rate mortgage, in almost every case.

About 99 percent of owners who originally had a conforming adjustable-rate mortgage (ARM) are now applying for a fixed-rate refinance loan, according to a report from Freddie Mac, a major buyer of existing home mortgages.

While 30-year fixed-rate mortgages continue to be preferred by homebuyers, the shorter 15-year loan is preferred by most owners applying for a refinance loan. “When interest rates hit very low levels for fixed-rate mortgages, borrowers often take this opportunity to lower their interest rate and shorten their loan term,” said Frank Nothaft, Freddie Mac’s chief economist.

“In April, mortgage rates reached new lows for both
15-year and 30-year fixed-rate loans. Many borrowers could shorten their loan terms without having a big increase in their mortgage payments, thereby building equity faster, reducing the total interest paid over the life of the loan, and ensuring their loan is largely paid off by their retirement,” Nothaft said.

“Both refinancing borrowers and families buying homes are shying away from ARMs in the current environment. The small benefit from the lower rate of an ARM loan is not enticing enough to cover the risk that rates will rise in the future from today’s historic lows.”

Affordability rising

Affordability is rising substantially in most regions nationwide, mostly because of significant home price declines and low mortgage interest rates.

These factors produced strong sales of existing homes during the second quarter of this year, according to a report from the National Association of Realtors. Total sales, including single-family homes and condominiums, rose 3.8 percent nationally to a seasonally adjusted annual rate of 4.76 million units during the second quarter. That reflects a sizable increase over the 4.58 million units in the first quarter.

Thirty-nine states experienced sales increases from the first quarter, and nine states were higher than a year ago. The District of Columbia showed both quarterly and annual rises.

Home sales are not only increasing but appear to be sustainable, noted Lawrence Yun, NAR’s chief economist. “With low interest rates, lower home prices and a first-time buyer tax credit, we’ve been seeing healthy increases in home sales,” Yun said. “That’s a hopeful sign for the economy.”

To find out more about national real estate columnist Jim Woodard, visit the Creators Syndicate Web site at www.creators.com.