WASHINGTON -- Refinancing homeowners - moving to lock in the lowest rates in a generation for as long as possible - are choosing 30-year, fixed-rate mortgages more than at any time since early 1991, a study shows.
In the third quarter of this year, 53% of refinancing homeowners with 30-year mortgages elected to stay with that product, up from 43% in the same period last year, according to the Federal Home Loan Mortgage Corp.
The study measuring which loan products homeowners choose when refinancing was based on instances in which Freddie Mac purchased both the original and refinanced loans.
The percentage of refinancers choosing 30-year mortgages is the highest since the second quarter of 1991 when 56% of refinancing 30-year, fixed rate mortgage holders took the plunge back into the 30. Conversely, 15-year fixed rate mortgages, which had been making steady inroads into the 30-year mortgage's preeminence, fell back to 29%, from 41% in the same period last year, the study said.
Since 30-year mortgages pay down more slowly than 15-year ones, they have lower monthly payments but raise the total amount of interest paid. Conventional wisdom has been that consumers were refinancing into 15-year mortgages in an effort to get tough with their own debt-to-equity ratios, a process which may have reversed.
Flattening of Yield Curve Cited
The move back to the 30-year mortgage has in large part been caused by a flattening of the yield curve, according to Freddie Mac economist Vasillis Lekkas. Mark Zandi, chief economist at Regional Financial Associates in West Chester, Pa., concurs. Whereas a year or more ago a 30-year mortgage would have been a full percentage point more expensive than a 15-year loan, that margin has now narrowed to half a point or less, according to Mr. Zandi. "This has the reduced the incentive to go with a shorter mortgage," he said.
Mr. Zandi also believes that this year's refinancers are, as a whole, less financially secure. "This year's refinancing homeowner may be more concerned with cutting his monthly payment," he said.