Refinancing Drops as Mortgage Interest Rates Jump

If you've been thinking about refinancing your mortgage but haven't done so by now, you may have missed your best opportunity.

Thirty-year fixed-rate mortgages shot up nearly half a percent last week, according to figures released today by the Mortgage Bankers Association (MBA). The MBA reported the average 30-year rate rose to 5.25 percent for the week ending May 29, up from 4.81 percent the week before. The increase was moderated by a decrease in points paid, which decreased to 1.02 points from 1.28 the week before.

In response, applications to refinance existing mortgages dropped nearly 25 percent from the week before, possibly signaling an end to the recent refinancing boom. Refinancing activity for the week was less than half of what it was in each of the five weeks after the Federal Reserve announced aggressive steps to free up credit in mid-March, when 30-year rates dropped as low as 4.61 percent.

Home purchase mortgage applications rise

The boost in interest rates failed to dampen interest in home buyers, however, as the MBA's index of mortgage applications for home purchases rose 4.3 percent from the week before. Low housing prices and a new $8,000 tax credit for first-time homebuyers apparently outweighed the boost in mortgage interest rates, which remain below historic norms.

Mortgage rates jumped last week after investors bid up yields on bond prices in response to improving economic signs and concerns over long-term inflationary pressures due to the Fed's injection of capital into the economy. Since mortgage rates are tied to bond prices, mortgage rates rose as well.

Will Fed act to send rates down again?

Rates could be headed back down again following the next Federal Reserve Meeting later this month. At their last meeting in April, the Fed's Board of Governors expressed a willingness to take additional measures to promote economic recovery, which many interpreted as further steps to keep interest rates down. However, given the recent spate of positive economic signs, including declining job losses and a boost in the Index of Leading Economic Indicators, the Fed may conclude additional stimulus is not needed.

The MBA's Weekly Mortgage Applications Survey is one of several prominent surveys that seek to track typical mortgage rates. Its results have recently tracked below some other leading surveys due to differences in the way they measure data. Data on this week's mortgage rates is due out on Thursday, when Freddie Mac and Bankrate.com release their weekly surveys.