Record lows in interest rates were accompanied by an increase in mortgage refinancing activity during the week ended December 7.  The Mortgage Bankers Association reports that its Market Composite Index, a measure of mortgage loan application volume, rose 6.2 percent on a seasonally adjusted basis from a week earlier and was up 6 percent on an unadjusted basis.

The Refinance Index was up 8 percent from the previous week and at its highest level since the week ended October 12.  Applications for refinancing had an 84 percent share of business compared to 82 percent during the week ended December 1.  Refinancing through the Home Affordable Refinance Program (HARP) accounted for 29 percent of refinance applications compared to 27 percent the prior week.

The seasonally adjusted Purchase Index increased about 1 percent and the unadjusted Purchase Index was down 4 percent week-over-week but 9 percent higher than the same week in 2011.

Purchase Index vs 30 Yr Fixed

Refinance Index vs 30 Yr Fixed

"Continued uncertainty due to the lack of resolution regarding the fiscal cliff led interest rates lower last week, with mortgage rates reaching a new low in our survey," said Mike Fratantoni, MBA's Vice President of Research and Economics.  "Refinance activity increased, with the refinance index hitting its highest level in two months, and the refinance share reaching its highest level since January 2009.  Applications for purchase increased for a fifth consecutive week, and are running almost ten percent above their level at this time last year."

Both contract and effective rates decreased for all fixed rate products with several rates setting new lows. The average contract interest rate for conforming 30-year fixed-rate mortgages (FRM) (balances of $417,500 or less) decreased to 3.47 percent, the lowest rate in the history of the survey, from 3.52 percent, and points decreased to 0.36 from 0.41.  Rates for jumbo 30-year FRM (balances greater than $417,500) decreased to 3.77 percent from 3.79 percent.  Points increased to 0.35 from 0.32.

The contract rate for FHA-backed 30-year FRM decreased to 3.32 percent with 0.51 point, the lowest rate in the history of the survey, from 3.34 percent with 0.62 point.

Fifteen-year fixed-rate mortgage rates declined on average by 1 basis point to 2.85 percent, the lowest rate in the history of the survey.  Points decreased to 0.26 from 0.27

Adjustable rate mortgages were the only products for which rates increased. The average contract interest rate for 5/1 ARMs increased to 2.63 percent from 2.62 percent, with points decreasing to 0.34 from 0.40 and the effective rate increased.   The adjustable-rate mortgage (ARM) share of activity remained at 3 percent of total applications.

Rates are derived from MBA's Weekly Mortgage Application Survey which covers over 75 percent of all U.S. retail mortgage applications and has been conducted since 1990.  Rates are quoted for loans with an 80 percent loan-to-value ratio and points include the origination fee. Base period and value for all indexes is March 16, 1990=100.