Mortgage applications increase sharply
While Americans have become used to low home loan rates, a further dip in interest rates last week caused a spike in mortgage applications.
Applications for a mortgage refinance were up by 16.5 percent for the week ending June 10, 2011, according to the Mortgage Bankers Association (MBA). Overall, mortgage applications for both new loans and refinancing rose by 13.0 percent for the week compared to the previous week. This represents the biggest jump in mortgage applications since March.
According to HSH.com, average mortgage rates dropped to 4.75 percent with 0.27 points on a 30-year fixed-rate home loan, down from 5.11 percent with 0.29 points a year ago and down from 4.81 percent with 0.27 points the previous week.
Refinancing activity driving home loan applications
“Mortgage rates have declined for eight of the past nine weeks,” said Michael Fratantoni, MBA’s vice president of research and economics. “Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November.”
The refinance share of applications rose to 70 percent for the week ending June 10, up from 67.3 percent the previous week.
ARM rates dip lower
Borrowers who know they are selling their home within a specific time frame, anticipate a jump in income or a decrease in expenditures, may want to look into a hybrid ARM. Last week, HSH.com reported that the average rate on a 3/1 ARM was 3.29 percent with 0.14 points. Paying interest at a rate as low as 3.29 percent for three years could result in significant savings.
Some financial experts suggest refinancing into an ARM and saving the difference each month between your payments for a fixed-rate loan versus your ARM payment. On a $300,000 home loan, the payments would be $253 less per month for principal and interest at 3.29 percent compared with 4.75 percent. Saving $3,000 in one year could go a long way to mitigating any rate increase when the loan resets.
