Mortgage borrowers continued to choose safety over savings during the second quarter, with most of those who refinanced an adjustable-rate loan switching to one with a fixed rate, according to Freddie Mac (FRE) .
Freddie said Monday that, of its prime borrowers who refinanced from April through June, 97% of those with a one-year conforming ARM, and 87% those with a conforming hybrid ARM moved into a fixed-rate mortgage instead. Those figures are quite a bit higher than the 92% and 80%, respectively, who took did the same during the first three months of the year.
Nearly all borrowers who refinanced a fixed-rate loan took on another fixed-rate loan.
Freddie Mac Chief Economist Frank Nothaft notes that refinancing borrowers who take out a one-year ARM today could save about three-quarters of a point on their interest rates compared with other mortgages. However, Nothaft says the ultra-low teaser rates once offered to lure in borrowers have "largely disappeared" in the current credit environment.
Borrowers are also concerned that inflationary pressures will push adjustable rates higher once they reset.
As a result, "without an extra discount, ARMs just aren't attracting many borrowers in today's market," he says.
Freddie Mac and its counterpart,
, together represent nearly half of the $5 trillion U.S. mortgage market.
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