Freddie Mac, which tracks what kind of mortgage people select when they refinance, says those with adjustable-rate loans are switching into fixed- rate loans, as they often do in a stable rate environment.

In 1989, 83% of ARMs that were refinanced changed to a 30-year fixed- rate loan, according to Freddie Mac. In the second quarter, 50% of ARMs that were refinanced went to a 30-year fixed.

"We are seeing a little of this now, but not dramatically," said Robert Van Order, chief economist at Freddie Mac, the Federal Home Loan Mortgage Corp. In 1989, he said, more homebuyers chose a 30-year or 15-year fixed rate loan over an adjustable-rate loan.

"People discovered that they could afford the rates of a 15-year, and they could keep the rates the same and pay off the loan quickly," Mr. Van Order said.

At First Tennessee Bank, there has been a steady increase in refinancings in the last three months, particularly by borrowers with adjustable loans looking for a fixed-rate product, but also by some who bought a fixed-rate loan at 9% less than a year ago, and are now looking for a rate below 8%, said Robert C. Bristow, a vice president at First Tennessee.

The difference between today's market and that of a few years ago is that many people who had the opportunity to refinance in the last wave did so, Mr. Bristow said.

"Two years ago, we had an environment where rates really dipped low for the first time. Before that, ARMs went through cycles of going up to their 1% or 2% caps, and people were getting pretty tired of that," Mr. Bristow said. The situation prompted many people to refinance to fixed-rate loans as soon as they could.

The difference now, he said, is that while two years ago there was pent- up demand for refinancing, in the current market, the majority of loans being refinanced were originated a short time ago.

Another mortgage banker said that some homeowners are not refinancing now because they can't.

"I think a lot of people are having trouble qualifying now," said David Hunter, a senior vice president Marine Midland Mortgage Corp., Buffalo, N.Y. He attributes the problems to declining property values and recent consumer debt consolidation.

"When people do no-cost loans where they pay a significantly higher rate and the bank pays their closing costs, even with normal depreciation they never seem to have enough equity to refinance," Mr. Hunter said.


A trend Mr. Van Order said he expects to see more of in the next five years is a move toward refinancing to a 15-year or 20-year fixed-rate loan, which would allow homeowners to pay off the loan quickly.

"We will see more 15-year fixed loans because baby boomers are going into their 50s and are in their prime earning years," Mr. Van Order said. "They have discovered they can afford they can make the payments and could own their house sooner. The baby boomers can have their home paid off by the time they retire."

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