Refis Still Shine as Lower Rates Drive Mortgage Applications

Refinancing continues to dominate mortgage activity, spurred by another dip in mortgage rates. The Mortgage Banker Association (MBA) said the volume of loan applications rose during the week ended January 24 even though some businesses were impacted by the Martin Luther King holiday.

MBA's Market Composite Index, a measure of mortgage loan application volume, increased 7.2 percent on a seasonally adjusted basis from the week ended January 17. The index was adjusted to account for the week's holiday. The index was 1.0 percent lower before adjustment.

The Refinance Index increased 8 percent from the previous week and was 146 percent higher than the same week one year ago. The refinance share of overall activity decreased to 60.4 percent of total applications from 61.6 percent the previous week. During the same week in 2019 the refinancing share was 42 percent.

The seasonally adjusted Purchase Index increased by 5.0 percent from one week earlier and was up 2,0 percent before adjustment. The index was 17 percent higher than the same week one year ago.

Refi Index vs 30yr Fixed

Purchase Index vs 30yr Fixed

"Mortgage applications continued their strong start to the year, as borrowers acted on the drop in mortgage rates last week. Rates were driven lower by investors' increased concern about the economic impact from China's coronavirus outbreak, in addition to existing concerns over trade and other geopolitical risks," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "With the 30-year fixed rate at its lowest level since November 2016, refinances jumped 7.5 percent. Purchase applications grew 2 percent and were more than 16 percent higher than the same week last year. Thanks to low rates and the healthy job market, purchase activity continues to run stronger than in 2019." 

The FHA share of total applications dropped to 10.7 percent from 11.3 percent the prior week and the VA share declined to 11.7 percent from 13.8 percent. The USDA share of total applications was unchanged at 0.5 percent. The amount of the average loan requested was $319,900 and for purchase loans was $338,700.

While most contract interest rates moved lower the FHA rate was an exception, and effective rates were mixed. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the conforming limit of $510,400 decreased to 3.81 percent from 3.87 percent. Points increased to 0.28 from 0.27 and the effective rate declined.

The rate for jumbo 30-year FRM, loans with balances higher than the conforming limit, dropped 9 basis points to 3.78 percent. Points dipped to 0.20 from 0.21 and the effective rate moved lower.

Both contract and effective rates rose for the 30-year FRM backed by the FHA. The rate increased to 3.82 percent from 3.78 percent and points went from 0.25 to 0.27.

The rate for 15-year FRM moved 1 basis point lower to 3.24 percent while points remained at 0.22. The effective rate was unchanged.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) declined to 3.15 percent from 3.29 percent and points dropped from 0.25 to 0.12, pulling the effective rate lower. The ARM share of activity increased to 4.7 percent of total applications from 4.6 percent a week earlier.

MBA's Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks, and thrifts.  Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.