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. Wilson said.

"Fixed rates make an uncertain world more certain," he added.

A Freddie Mac economist also predicts even more refinancing into 30-year fixed-rate loans during early 1996, because of low rates. "Some 46% of mortgage applications in January of this year were to refinance existing loans," said Frank Nothaft, deputy chief economist at the secondary-market agency.

"When the refinancing boom ended in April 1994, the 30-year fixed mortgage rate measured by the Freddie Mac Primary Mortgage Market Survey was at 8.32%," said Mr. Nothaft. "The rate was 6.94% in our most recent survey, so we expect significant refinance activity in the months ahead."

Not everyone expects refinance activity in the next few months to be impressive.

"Even though rates have gone down, they're not much lower than they were during the last refi boom," said Mr. Wilson. "The only people refinancing now are new homebuyers, so levels won't be astronomical."

For shorter-term mortgages to become attractive again to consumers, the Federal Reserve would have to lower rates another few notches, said Andrew Jones, with Duff & Phelps, the credit rating agency.

Many industry observers expect another rate reduction at the end of March.

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