Low Rates Spur Major Refinancing, But Not Home Buying

Feb 4th, 2009 @ 2:42 PM by Amber Nelson

The demand for mortgage money shot up in the latest week, led heavily by an increase in refinance requests, according to the Mortgage Bankers Association Wednesday.

The MBA’ weekly Market Composite Index, a measure of the number mortgage applications filed, grew by 8.6 percent in the week ended January 30, 2009, to 795.4 on a seasonally adjusted basis from 732.1 the previous week.

By far, the majority of the applications during the last week were for refinance loans rather than home purchase loans. The refinance share of all applications rose to 73.2 percent from 72.8 percent the week before. The refinance index itself increased 15.8 in the latest week while the MBA’s index of home purchase applications fell 11.2 percent. In fact, the purchase index reading is currently close to an eight-year low.

The major catalyst for the increase in refinancing has been record-low mortgage interest rates. The MBA reported that the average rate on a 30-year fixed rate mortgage rose to 5.28 percent last week, but rates have been as low as 4.89 percent in the past month, the lowest rate in the MBA’s weekly survey since it began in 1990.

Refinancing into mortgages with lower interest rates helps many homeowners get out of risky adjustable rate loan and prevent default or foreclosure. For others, it simply means saving a lot of money on their monthly payments. In the current economy, consumers are playing it safe – they are willing to apply for new loans that will reduce their costs and bring greater security but many are not ready to make big purchases like homes and cars.

A report from the National Association Realtors Tuesday says that home purchases may be on the rise soon as well though. The NAR’s Pending Home Sales Index, an indicator of forthcoming home sales based on contracts signed in December, showed a 6.3 percent up tick, a very positive indication for the industry.

Interest rates may continue to play a large role in the number of refinance and home purchase applications in the weeks and months to come as Congress contemplates bringing the 30-year fixed rate loan down to 4 percent for qualified borrowers. The Senate plans to vote on its newest stimulus package and related mortgage plans by the end of the week.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

Posted in Home Equity Loans, Mortgage Rates, Mortgage Refinancing, Mortgages
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