Smart Borrower Blog

Mortgage Applications Fall on Rising Rates

Oct 12th, 2016 @ 11:39 AM by Amber Nelson

The number of Americans applying for mortgage loans dropped off in the latest week, according to the latest data from the Mortgage Bankers Association. An increase in interest rates was the most likely reason borrowers were scared away from the mortgage table.

“As incoming economic data reassured investors regarding U.S. growth, and financial markets returned to viewing a December Fed hike as increasingly likely, mortgage rates rose to their highest level in a month last week,” said Michael Fratantoni, chief economist at the MBA. “Total and refinance application volume dropped to their lowest levels since June as a result.”

The MBA’s market composite index, a measure of home loan application volume, fell 6.0 percent on a seasonally adjusted basis during the week ended October 7, 2016 from the previous week. Split into parts, requests for refinance loans sank 8 percent, with the Refinance Index falling to its lowest level since June of this year. Home purchase loan applications declined 3 percent but was still roughly 27 percent higher than the year before.

Interest rates rose significantly during the same week, making refinancing a much less lucrative and attractive option. The average rate on a 30-year fixed rate conventional mortgage rose to 3.68 percent, up from 3.62 percent a week earlier. That increase in rates was enough to bring the refinance share of mortgage activity to 62.4 percent in the latest week, compared with 63.8 percent the week before.

The volume of government-backed loans actually increased in the past week, with FHA loans making up 10.9 percent of all loans, up from 10.0 percent a week ago and VA loan share rising to 12.0 percent, up from 11.4 percent the week before.

Adjustable rate mortgages remain unpopular with all but a small percentage of potential borrowers. ARM loan requests made up just 4.1 percent of the total.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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