Fixed rates draw most U.S. refinancing

Washington -- Borrowers are moving from adjustable- to fixed-rate mortgages even though some fixed rates are higher, a major mortgage broker said Monday.

In the second quarter, 97 percent of prime borrowers with conforming adjustable rate mortgages and 87 percent of those with hybrid adjustable rates moved to fixed rates when they refinanced, the Federal Home Loan Mortgage Corp. said.

"Concerns about inflationary pressures leading to future interest rate increases may be causing borrowers to choose the safety and certainty of fixed rates," said Frank Nothaft, vice president and chief economist for Freddie Mac.

Borrowers are choosing fixed rates, although borrowers with 1-year adjustable-rate mortgages would currently save about 3/4 of a percentage point compared with 15-year, fixed-rate mortgages, Nothaft said.

"Teaser rates on ARMs have largely disappeared," Nothaft said. "During the second quarter, the initial interest rate on 1-year ARMs averaged three-tenths of a percentage point higher than the fully indexed rate.

Without an extra discount ARMs just aren't attracting many borrowers in today's market."

Copyright 2008 by United Press International.