Refinancing applications dip as mortgage rates rise
While stronger economic news is generally positive, last week’s news caused mortgage rates to rise. Fewer consumers applied for new mortgage loans.
The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 1, 2011 showed that refinancing applications dropped by 9.2 percent over the previous week. Overall, home loan applications dropped by 5.2 percent.
According to HSH.com, mortgage rates for a 30-year fixed-rate home loan rose to 4.79 percent last week with 0.28 points, lower than one year ago, when rates were 5.00 percent, but higher than recent weeks.
“Stronger economic data towards the end of the week coupled with the end of the Fed’s second round of quantitative easing helped bring mortgage rates to their highest level in over a month,” said Michael Fratantoni, MBA’s vice president of research and economics. “Refinance activity, already constrained by a smaller pool of eligible borrowers, declined in response to the higher rates, but purchase applications picked up appreciably in the week before the July 4th holiday.”
The refinancing share of home loan applications decreased to 66.4 percent of all applications.
Economic data and mortgage loans
As the economy improves, financial experts expect mortgage rates to rise. Mortgage analysts at HSH.com pointed to the June 30th end of the Federal Reserve’s quantitative easing along with a surprising increase in the manufacturing index for June from the Institute for Supply Management. Other positive data came from several Federal Reserve regions reporting improving economic activity and more manufacturing activity reported in Chicago and New York.
Adjustable rate mortgage (ARM) activity
The interest rate gap between a 30-year fixed-rate loan and an ARM widened, with HSH.com reporting that the average 5/1 ARM had an interest rate of 3.40 percent with 0.27 points last week. The ARM share of mortgage applications rose to 6.1 percent last week.
For borrowers with a specific timeframe for owning a home or who anticipate an increase in income before the mortgage rate resets, an ARM may be the right home loan.
