Falling Rates Spark Renewed Interest in Refinancing

By:: Kirk Haverkamp | October 13, 2010

Applications to refinance existing mortgages surged last week, after weeks of decline despite falling interest rates, according to new figures from the Mortgage Bankers Association.

Refinance applications increased a seasonally adjusted 21 percent from the previous week, as rates finally fell far enough to spur renewed interest from homeowners. Refinance applications had been in decline for five consecutive weeks despite falling rates, suggesting that demand was saturated.

The average interest rate on 30-year fixed-rate mortgages fell to a new record low of 4.21 percent, down from last week’s previous record of 4.25 percent. The rate has fallen nearly four-tenths of a percentage point in just the last eight weeks, from 4.60 percent reported in mid-August.

"After five weeks of steadily declining rates to yet another new low, borrowers who had been on the fence jumped off, which factored into refinance activity surging more than 20 percent," said Michael Fratantoni, MBA vice president of Research and Economics. "Refinance application volumes are now close to the highest level this year.”

Applications for mortgages to purchase homes declined by 8.5 percent, driven by a decrease in FHA applications. FHA mortgage activity spiked last week in advance of a new fee structure that took effect Oct. 4. However, applications for conventional home purchase mortgages were at their highest level since the expiration of the homebuyer tax credit last spring, Frantoni said.

The average rate on 15-year fixed-rate mortgages fell to 3.62 percent, another record low, down from last week’s previous record of 3.73 percent. Averages are based on mortgages with an 80 percent loan-to-value ratio.

The MBA survey covers mortgage applications for the week ending the previous Friday.

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