Mortgage Refinances Pick Up as Rates Drop

Mortgage refinancing activity jumped sharply last week as 30-year interest rates dropped back down toward the magic 5 percent mark.

Applications to refinance existing mortgages increased by nearly 18 percent, according to a weekly survey by the Mortgage Bankers Association, as average interest rates on 30-year fixed mortgages fell by nearly a third of a percent to 5.05 percent.

It's the lowest 30-year rate the survey has reported in seven weeks and approaches the sub-5 percent mark that many experts say is needed to help restart the housing market. Even so, applications for mortgages to purchase a home were down nearly 10 percent from the week before, possibly because prospective homeowners had cut back their home shopping efforts in recent weeks while prices were higher.

Rates on 15-year mortgages in the survey dropped to 4.59 percent, down from 4.83 percent the week before, offering an unusually good value for homeowners who have built up a fair amount of equity in their property or are otherwise in a position to refinance their mortgages into a shorter term. The survey covers the week ending last Friday, July 10.

Refinancing activity remains far below the levels it hit in March and April, when 30-year rates in the MBA survey dropped as low as 4.61 percent, triggering a flood of applications by homeowners seeking to lock in the lowest rates in at least 40 years. Last week's demand for refinances remains less than a third of the peak during that period.

Since then, investor fears about building inflationary pressures bid 30-year rates back up into the upper five percent range in June, cutting off refinance demand. Since then, signs of continued weakness in the economy have eased those concerns, and mortgage rates have backed down as a result.

The current week's 30-year rate is more than a full percent below where it was one year ago last week, when it stood at 6.22 percent.