A significant drop in mortgage rates triggered a surge in refinancing activity during the week ended October 10. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of loan application volume, rose 5.6 percent on a seasonally adjusted basis compared to the week ended October 3 and was up 6 percent unadjusted.
The increase was due entirely to a jump in refinancing applications. MBA's Refinance Index was 11 percent higher than during the previous week and the refinance share of applications rose to 59 percent from 56 percent.
Refinance Index vs 30 Yr Fixed
"Growing concerns about weak economic growth in Europe caused a flight to quality into US assets last week, leading to sharp drops in interest rates. Mortgage rates for most loan products fell to their lowest level since June 2013," said Mike Fratantoni, MBA's Chief Economist. "Refinance application volume reached the highest level since June 2014 as a result, with conventional refinance volume at its highest since February 2014."
The surge in mortgage applications did not extend to applications for home purchase mortgages. The seasonally adjusted Purchase Index fell 1 percent compared to the previous week and the unadjusted index was down 0.3 percent. On an unadjusted basis the Purchase Index was 4 percent lower than during the same week in 2013.
Purchase Index vs 30 Yr Fixed
As Fratantoni said, both contract and effective interest rates declined across the board. Conventional 30-year fixed-rate mortgages (FRM) with a loan value of $417,000 or less had an average contract rate of 4.20 percent with 0.17 point, down from 4.30 percent with 0.19 point the previous week.
Jumbo 30-year FRM with loan balances over the conforming amount had a contract rate of 4.14 percent, down 7 basis points from a week earlier and the lowest rate since May 2013. Points decreased to 0.10 from 0.29.
The average rate for an FHA-backed 30-year FRM fell to the lowest level since June 2013, 3.90 percent with 0.08 point. The previous week the rate had been 4.00 percent with 0.15 point.
A 7 basis point decrease brought the contract rate for a 15 -year FRM down to its lowest level since this past July, 3.41 percent. Points declined to 0.28 from 0.32.
The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 3.05 percent, the lowest since June 2013, from 3.20 percent, Points edged up to 0.38 from 0.37. Applications for ARMs made up 8 percent of the total for the week compared to 7.8 percent the week before.
MBA's application indices are derived from the results of its Weekly Mortgage Application Survey. The survey is conducted among mortgage bankers, commercial banks and thrifts and covers over 75 percent of U.S. retail mortgage applications. Interest rate data assumes a mortgage with a loan-to-value ratio of 80 percent and points include the origination fee. The base period and value for the indexes is March 16, 1990=100.