Mortgage refinancing drops by 43% from a year ago

A home’s sign for sale for real estate will be seen on November 19, 2020 in front of a home in Arlington, Virginia.

Saul Loeb | AFP | Getty Images

The recent sharp rise in interest rates now demands the demand for mortgage refinancing, as the number of borrowers who can benefit from it shrinks.

Applications to refinance a home loan fell by 5% last week compared to the previous week, according to the seasonally adjusted index of the mortgage lender association. They were also 43% lower compared to the same week a year ago. This is the first year-on-year decline since March 8, 2019. Last year at this point, mortgage rates dropped dramatically because the fear of the coronavirus hit financial markets. This has caused a huge increase in refinancing demand, hence this year’s comparison.

The refinancing share of mortgage activities decreased to 64.5% of the total applications from 67.5% the previous week.

The average interest rate for contracts for 30-year fixed-rate bonds with corresponding loan balances ($ 548,250 or less) rose to 3.26% from 3.23%, with points falling to 0.43 from 0, 48 (including the original fee) for loans with 20% lower payment. Although the weekly move is not that big, rates have been 40 basis points higher since the beginning of this year.

“Signs of faster economic growth, an improved labor market and increased vaccine distribution are pushing rates higher,” said Joel Kan, co-vice president of economic forecasting. “The rise in mortgage rates continues to cool the demand for refinancing applications. Activity declined for the fourth time in five weeks last week.”

As rates rise, so does the pool of borrowers who can benefit from refinancing. About 15% of borrowers have a fixed first mortgage loan for thirty years, with rates below 3%, and about half of all lenders have rates below 4%, according to Black Knight.

Mortgage applications to buy a home, which is less sensitive to weekly rate changes, rose 7% for the week, but were only 2% higher than the same week one year ago. Home sales stopped in April and May 2020 during the initial exclusion, before bouncing back strongly last summer.

“With the spring buying season just around the corner, the buying market had the strongest performance in four weeks, with an increase in conventional as well as government applications,” Kan said, noting that loan sizes have been moderated for the second consecutive week. first buyers enter the market.

Mortgage rates started to plummet this week and even retreated slightly on Tuesday, but they could take a decisive step on Wednesday after the ten-year-long treasury auction. Mortgage rates follow the return on that mortgage loosely.

“This essentially gives the market a chance to vote on whether the recent rise in rates is sufficient to reflect progress towards the pandemic and advance a stronger economy,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.

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