Smart Borrower Blog

Mortgage Rates Top 5%, Loan Applications Slip

Oct 10th, 2018 @ 8:40 PM by Amber Nelson

As long-term U.S. mortgage interest rates rose to their highest level in over 7 years, fewer potential buyers and refinance borrowers applied for home loans this week, according to data from the Mortgage Bankers Association.

The average rate on a conforming 30-year fixed-rate mortgage jumped to 5.05%, with 0.51 points, up from 4.96% and 0.49 points last week, the first time it has topped 5% since February 2011. “Rates moved higher last week, driven by strong data on the job market, indicating that the Fed will continue to raise rates,” said Joel Kan, an MBA economist.

That increase in rates was enough to scare some potential borrowers away from the mortgage table. The MBA’s index of mortgage application volume fell 1.7% during the past week, and plunged 15% compared with a year ago.

Weakened demand for refinance loans led the drop in total applications. Refinance requests decreased 3% in the past week and 32% from the year before. Because refinancing demand is so sensitive to fluctuation in interest rates, this week’s rate increases pushed the refinance share down to just 39% of all mortgage applications. By comparison, at this time two years ago, when interest rates were almost 2% percent lower, refinances made up 62% of all mortgage requests.

Applications for home purchase loans fell by 1% in the past week. As home affordability continues to decline, buyers are turning to alternative loan types, especially adjustable rate mortgages. “Since the end of August, the ARM share has increased to 7.3 percent from 6.1 percent, while the 30-year fixed rate has increased 25 basis points,” Kan said.

As interest rates have been rising, home price appreciation has been slowing in its pace. That is welcome news for buyers looking for relief from limited inventory and bidding wars.

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

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