Mortgage Applications Today: Dip in Mortgage Rates Sparks Refinance Uptick—but New Home Loan Demand Falls Again

The interest in home loan refinancing picked up. Mortgage refinance applications increased by 4% for the week ending Oct. 17, according to the Mortgage Bankers Association (MBA). But the demand for new home loans decreased by 0.3% for yet another week.

The average mortgage rate on a 30-year fixed home loan is 6.27% for the week ending Oct. 16, that’s down from 6.3% the week before, according to Freddie Mac.

The Market Composite Index, a mortgage loan application volume measure, decreased 0.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 0.2% compared with the previous week.

More perspective on refinancing, the refinance index which increased 4% from the prior week—was also 81% higher than the same week a year ago.

The seasonally adjusted Purchase Index decreased 5% from one week earlier. The unadjusted Purchase Index decreased 5% compared with the previous week and was 20% higher than the same week one year ago.

The government shutdown has slowed down key data coming in, but the Federal Housing Administration (FHA) share of total applications increased to 21.8% from 20.5% the prior week. FHA loans are still available, but applicants can expect delays in processing and closings.

The Veterans Affairs share of total applications decreased another week to 13.5% from 14.9% the prior week. The USDA share of total applications decreased to 0.3% from 0.4% from the prior week.

"The lowest mortgage rates in a month spurred an increase in refinance activity, including another pickup in ARM applications. The 30-year fixed rate decreased to 6.37 percent and all other loan types also decreased,” said Joel Kan, MBA’s vice president and deputy chief economist.

"The refinance index increased 4 percent, driven by a 6 percent increase in conventional refinances and a 12 percent increase in FHA refinance applications, as borrowers remain attentive to these opportunities to lower their monthly mortgage payment. VA refinances bucked the trend and were down 12 percent.”

Contract rates

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) decreased to 6.37% from 6.42%, with points increasing to 0.59 from 0.61 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) decreased to 6.39% from 6.47%, with points increasing to 0.37 from 0.53 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.  

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.12% from 6.19%, with points decreasing to 0.72 from 0.76 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.74% from 5.77%, with points decreasing to 0.67 from 0.70 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 5.55% from 5.63%, with points increasing to 0.62 from 0.59 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.

"ARM applications increased 16 percent over the week, which pushed the ARM share to 11 percent, with the ARM rate more than 80 basis points lower than the 30-year fixed rate. Purchase applications were down over the week but remained 20 percent higher than a year ago," said Kan.

Mortgage rates calculated

Mortgage rates are calculated by various factors in the economy, and the length of your loan will also figure into the mortgage rate you qualify for.

The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, according to Fannie Mae. As the yield on the 10-year Treasury note moves, mortgage rates follow.

The yield on the 10-year Treasury note is determined by expectations for shorter-term interest rates in the economy over the duration of a bond, plus a term premium.