Mortgage Application Payments Increased Nearly 30% Last Week as Rates Fall

WASHINGTON—In advance of the expected rate cut later today by the Federal Reserve comes news that mortgage applications recently have risen sharply due to falling interest rates.

Mortgage applications increased 29.7% for the week ended Sept. 12 as compared to one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.

The refinance share of mortgage activity increased to 59.8% of total applications from 48.8% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 12.9% of total applications. The seasonally adjusted Purchase Index increased 3% from one week earlier. The unadjusted Purchase Index increased 12% compared with the previous week and was 20% higher than the same week one year ago.

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 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) increased to 6.48% from 6.44%, with points decreasing to 0.35 from 0.48 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

“Indicative of the weakening job market, and in anticipation of a rate cut from the Federal Reserve, mortgage rates last week dropped to their lowest level since last October, with the 30-year fixed rate declining to 6.39%. Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “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. Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.”

Added Fratantoni, “Even as 30-year fixed rates reached their lowest level in almost a year, more borrowers, and particularly more refinance borrowers, opted for adjustable-rate loans, with the ARM share reaching 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.”

The FHA share of total applications decreased to 16.3% from 18.5% the week prior. The VA share of total applications increased to 15.8% from 15.3% the week prior. The USDA share of total applications decreased to 0.5% from 0.6% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.14% from 6.27%, with points remaining unchanged at 0.68 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.63% from 5.70%, with points increasing to 0.58 from 0.55 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 5.65% from 5.77%, with points decreasing to 0.41 from 0.63 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.