Refinancing Continues to Fall As Rates Move Higher
Apr 2nd, 2014 @ 7:58 PM by Amber Nelson
Higher mortgage interest rates are taking a bite out of refinancing benefits, according to the Mortgage Bankers Association, bringing down the share of refinance applications.
During the week ended March 28, total mortgage applications fell 1.2 percent based on the MBA’s Market Composite Index, a measure of application volume, from the previous week. Last week, the index fell 3.5 percent. Application volume has fallen for three straight weeks. In mid-February it plummeted to a two-decade low.
A decline in requests for refinance loans led the way for the overall decrease as the Refinance Index fell 3 percent, while the Purchase Index, a measure of total applications for home purchase mortgage, dropped just 1 percent. Refinance applications now make up 53 percent of all requests, after losing ground for eight consecutive weeks now. And upward trending mortgage rates have everything to do with that.
During the same week, mortgage giant Freddie Mac reported that the average rate on 30-year fixed rate conventional loans jumped up to 3.40 percent, excluding fees from 4.32 percent the week before. As rates rise, the attractiveness of refinancing decreases as the potential savings disappear. At times during the past several years, when long-term rates have been at all-time record lows, the refinance share of applications has reached roughly 75 percent, but that percentage has steadily fallen as rates have crept back up.
And of the share of home-purchase mortgage requests, the overwhelming majority are for fixed rate loans instead of adjustable rate mortgages (ARMs.) Only 8 percent of mortgage applications were for ARM loans. That trend is a major trend shift from before the mortgage meltdown when ARMs were the only way for many buyers to break into the market.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.