Lower Rates Drive a Refinancing Rush

January 21, 2015

As mortgage rates continue to fall, many home owners are scoring monthly savings by refinancing their mortgages, according to the Mortgage Bankers Association’s latest mortgage activity survey.

Mortgage application volume, reflecting applications for refinancings and home purchases, surged 14.2 percent last week on a seasonally adjusted basis. Total application volume is now 41 percent higher than it was a year ago. The jump in applications almost was completely driven by an increase in refinancings.

Mortgage applications for refinancings rose 22 percent from the previous week and are up 63 percent from year ago levels, the MBA reports. Meanwhile, applications for home purchases, viewed as a leading gauge of future home buying activity, dropped 3 percent on a week-to-week basis but are 3 percent higher than this time last year.

"This increase was largely due to mortgage rates dropping to their lowest level since May 2013,” says Mike Fratantoni, the MBA’s chief economist. “However, the recent reduction in FHA mortgage insurance premiums also played a role: FHA refinance applications increased 57 percent last week.”

Earlier this month, the Federal Housing Administration announced a drop in its annual insurance premiums from 1.35 percent to 0.85 percent, which could save an average borrower about $80 on a monthly payment. In his State of the Union address last night, President Barack Obama cited the cut as a factor to improve the middle-class economy.

The MBA reports that the 30-year fixed-rate mortgage fell to 3.80 percent last week. Lenders are reporting some of the most credit-worthy borrowers are now able to snag rates as low as 3.625 percent on a 30-year fixed-rate loan.

Source: “Mortgage Applications Rise on Refinancing Surge,” CNBC (Jan. 21, 2015)