Mortgage rates last week dropped to the lowest level since October of last year. That caused a massive run on refinances, as consumers seek more savings in an uncertain economy.
Applications to refinance a home loan jumped 58% last week compared with the previous week and were 70% higher than the same week one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. The refinance share of mortgage activity increased to 59.8% of total applications from 48.8% the previous week.
This as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, decreased to 6.39% from 6.49%, with points decreasing to 0.54 from 0.56, including the origination fee, for loans with a 20% down payment.
“Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey,” said Mike Fratantoni, MBA’s SVP and chief economist.
Refinance applications were particularly strong for adjustable-rate mortgages (ARMs). The ARM share of activity increased to 12.9% of total applications, its highest level since 2008.
“Notably, ARMs typically have initial fixed terms of five, seven, or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did. Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans,” added Fratantoni.
Potential homebuyers were not quite as invigorated by the drop in rates. Applications for a mortgage to purchase a home rose 3% for the week and were 20% higher than the same week one year ago.
Mortgage rates moved even lower to start this week, ahead of a potential interest rate cut by the Federal Reserve Wednesday. The average rate on the 30-year fixed hit 6.13%, it’s lowest level since the end of 2022, according to a separate survey from Mortgage News daily. Some, however, say there could be a bond selloff, resulting in higher rates, following a Fed rate cut, as happened last year.
