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Fixed-Rate Mortgages Still Popular with Consumers: Freddie

Fixed-rate mortgages remained largely popular with consumers over the third quarter, according to ""Freddie Mac"":http://www.freddiemac.com/, despite the willingness by some lawmakers and policymakers to part ways with the loan product.


In releasing the Quarterly Product Transition Report, the GSE found that more refinancing borrowers opted to contract their mortgage terms over the course of the second quarter.

""Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third quarter,"" ""Frank Nothaft"":http://www.freddiemac.com/bios/exec/nothaft.html, VP and chief economist with Freddie, said in a ""statement"":http://freddiemac.mediaroom.com/index.php?s=12329&item=84808. ""For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.""

Forty percent of borrowers with a 30-year fixed-rate mortgage exchanged their old products for 15- and 20-year mortgages, topping off the most such since 2003, Freddie found.


Of those homeowners with hybrid adjustable-rate mortgages, 63 percent went for a fixed-rate mortgage over the third quarter, compared with 37 percent who stayed with their original mortgage products.

The decision by many consumers to stay with fixed-rate mortgages or exchange current ones for others shadows discussions among policymakers about the future of the financial product.

In October ""Sen. Richard Shelby"":http://shelby.senate.gov/public/ (R-Alabama) captured headlines by openly questioning whether the 30-year fixed-rate mortgage creates a ""public good"" at a ""Senate Banking Committee"":http://banking.senate.gov/public/ hearing on the future of housing finance reform.

""Is a 30-year fixed-rate mortgage the best option to consume?"" he asked during the hearing. ""Is the pre-payment option included these 30-year fixed-rate mortgages truly free? And what has the subsidy of this product already cost the American taxpayer?""

""These mortgages were never even heard of when we designed the 30-year fixed-rate mortgage back in the 1930s,"" ""Jack Konyk"":http://www.linkedin.com/pub/jack-konyk/17/818/6b1, executive director for government affairs with ""Weiner Brodsky Sidman Kider PC"":http://www.wbsk.com/home.php, told _MReport_ in a past interview.

He cited as alternatives the portable mortgage, which he describes as a financial product capable of relocating to new collateral, and the shorter-term non-fully amortizing loan.

""We need to consider alternatives before we settle on a mortgage vehicle for today's society,"" he added.