Weekly mortgage refinancing demand shoots 23% higher, with riskier loans making a comeback
Total mortgage application volume rose 10.9% from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, decreased to 6.67% from 6.77%, with points increasing to 0.64 from 0.59, including the origination fee, for loans with a 20% down payment. That rate is 13 basis points higher than it was the same week one year ago.
The average contract interest rate for 5/1 ARMs (adjustable-rate mortgages) decreased to 5.80% from 6.06%. ARM loans are generally fixed for a term but then adjust to market rates, making them riskier products.
Applications to refinance a home loan jumped 23% for the week and were 8% higher than the same week one year ago. That was the strongest week for refinancing since last April. The refinance share of mortgage activity increased to 46.5% of total applications from 41.5% the previous week.
"As seen in other recent refinance bursts, the average loan size grew significantly to $366,400. Borrowers with larger loan sizes continue to be more sensitive to rate movements," said Joel Kan, an MBA economist in a release. "Given the relative attractiveness of ARM rates compared to fixed rate loans, ARM applications increased 25 percent to their highest level since 2022, and the ARM share of all applications was almost 10 percent."
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Lower rates, however, didn't do much for potential homebuyers. Applications for a mortgage to purchase a home rose 1% for the week and were 17% higher than the same week one year ago. While home prices are definitely weakening in most markets and falling in some, they are still quite high historically compared with incomes.
Mortgage rates haven't moved much to start this week, even after a key report on inflation. The monthly Consumer Price Index was mixed, showing some impacts from tariffs but some price declines in large categories.
"The odds of a Fed rate cut actually improved for September. Shorter-term bonds also improved (no surprise, as they are highly correlated with Fed rate expectations)," wrote Matthew Graham, chief operating officer at Mortgage News Daily. "But longer-term bonds (which includes the bonds that dictate mortgage rates) held steady."
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