Mortgage refinance demand jumps after rates drop

An aerial view of existing homes near new homes under construction (UPPER R) in the Chatsworth neighborhood on September 08, 2023 in Los Angeles, California. 

Mario Tama | Getty Images

Homeowners looking to refinance are finding savings after mortgage rates dropped again last week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.07% from 7.17%, with points falling to 0.59 from 0.60 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That was the lowest level since July.

“Mortgage rates dropped last week, as incoming data point to a slowing economy and support a pivot by
the Federal Reserve to begin cutting rates next year,” said Mike Fratantoni, MBA senior vice president and chief economist.

As a result, applications to refinance a home loan increased 19% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Refinance demand was 27% higher than the same week one year ago.

“Borrowers who had seen rates near 8% earlier this fall are now seeing some lenders quote rates below 7%. Refinance volume picked up in response to this drop in rates, with a particularly notable increase for FHA and VA refinance applications,” Fratantoni added.

Applications for a mortgage to purchase a home rose 4% for the week but were still 18% lower than the same week one year ago. Homebuyers today may be getting a break from lower mortgage rates, but there is still tough competition in a market with high prices and few homes for sale.

Mortgage rates have not moved much this week, as economic data so far has come in aligned with expectations. That could change Wednesday, depending on the outcome of the latest Federal Reserve meeting and comments from Chair Jerome Powell. Markets expect the Fed to hold steady on its benchmark rate while anticipating cuts next year.

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