Mortgage rates twist to a new low
Mortgage rates on 30-year fixed rate home loans dropped again last week and refinancing applications surged by 11.2 percent over the previous week.
The Mortgage Bankers Association’s Weekly Refinance Index for the week ending September 23, 2011 showed not only an increase in the number of homeowners completing a refinance application, but also an increase (up to 79.7 percent) in the refinance share of all mortgage applications.
“Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” Mike Fratantoni, MBA’s vice president of research and economics, said in a statement. “With lower rates, refinance application volume increased to its highest level since August 19, 2011.”
Mortgage rates and the Federal Reserve
While the Federal Reserve does not set mortgage rates, some of the Federal Reserve’s actions can influence the direction of interest rates on home loans.
“The Federal Reserve introduced both ‘Operation Twist’ and a new mortgage-backed securities purchasing program last week,” said Keith Gumbinger, HSH.com’s vice president. “These programs are to drive down market interest rates for business borrowers and mortgage rates for homebuyers and refinancers. So far, there has been at least some of the desired effect.”
While mortgage rates have remained low for most of 2011, Gumbinger says that if the Federal Reserve’s moves are successful and develop a stronger economic recovery, it is possible that mortgage rates could increase. In general, mortgage rates rise when the economy improves.
For the week ending September 23, HSH.com reported that 30-yeard fixed-rate home loans averaged 4.13 percent, while the average rate for a 5/1 adjustable rate mortgage (ARM) was 3.01 percent. Although ARMs currently have an extremely low interest rate for the fixed period of the loan, these loans represent only 6.1 percent of all home loan applications.
If you are a homeowner interested in refinancing, you may want to look into the pros and cons of an ARM.
