Refinancing activity slows as rates tick up
The spike in mortgage applications during the week ending January 13, 2012 was followed by a dip in the number of applications last week, according to the Mortgage Bankers Association (MBA). Mortgage rates also rose slightly last week.
While mortgage applications may have declined because of the slight uptick in mortgage interest rates, the decrease may also have been caused because of the sharp increase (23 percent) in all mortgage applications for the previous week. According to HSH.com, the surge in mortgage applications during the week ending January 13 may have been partly caused by pent-up post-holiday demand since that was the first full week of the new year.
The Refinance Index released by the MBA for the week ending January 20, 2012 shows that applications for a home refinance decreased by 5.2 percent from the previous week. According to HSH.com, average mortgage rates rose slightly last week, up to 4.22 percent for a 30-year fixed-rate home loan and to 3.53 percent for a 15-year fixed-rate mortgage. The average mortgage rate for a 5/1 adjustable rate mortgage (ARM) was 3.04 percent.
Mortgage refinancing options
The MBA reported that in December 2011, 56.6 percent of borrowers who were applying for a mortgage refinance opted for a fixed-rate 30-year home loan 24.3 percent applied for a 15-year fixed-rate loan. Just 5.3 percent of applications were for ARMs. Low interest rates have made shorter term loan payments more affordable than in the past and many homeowners have switched from a 30-year home loan to a 15-year mortgage to eliminate mortgage debt faster.
Refinance rates and the Federal Reserve
The Federal Reserve announced on January 25 that it is likely to keep the federal funds rate near zero through late 2014. In addition, the Fed plans to continue its “Operation Twist” policy, designed to keep long-term interest rates such as mortgage rates low.
Mortgage rates are expected to remain close to record lows in 2012, but some loan fees are rising which could make refinancing more expensive for those who wait.
