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“Mortgage refinancing in the U.S. is increasing as record numbers of homeowners dump their adjustable-rate mortgages for the security of a fixed loan,” reports Bloomberg News. Fannie Mae adds that 90 percent of refinancing homeowners will opt for a fixed-rate mortgage.
Homeowners with LIBOR-indexed adjustable loans are particularly anxious to lock in stable rates. Since LIBOR is an international benchmark, it hasn’t fallen as the Federal Reserve has cut short-term rates in the U.S. In fact, LIBOR rates actually have increased in recent months. Almost 60 percent of ARM holders have LIBOR-based loans, notes First American CoreLogic Inc.
LIBOR is the predominant index found on subprime mortgages. Many of those don’t have two percent caps on adjustments, so borrowers are facing potentially-catastrophic increases in monthly payments. Higher LIBOR rates mean that refinancing borrowers don’t pay much more with a new fixed-rate loan than their payments would be after their current mortgage adjusts.
Even borrowers considering Treasury-indexed adjustables find they aren’t as good of a deal as in the past. Today the spread between fixed and adjustable mortgages is the narrowest since 2000, according to Freddie Mac. Adjustable-rate mortgages will make up just eight percent of new loans this year, Freddie adds.
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