Plummeting interest rates prompted more homeowners to refinance last week, pushing mortgage applications up 6.9% from a week earlier, an industry trade group said.
The Mortgage Bankers Association's weekly mortgage applications survey shows the refinance index jumping 13.5% from the previous week, while the home purchase index declined 11.2%.
Despite declining interest among homebuyers, the application index grew as renewed debt concerns in Europe pushed the 30-year, fixed-rate mortgage rate to record lows, making it an attractive time to refinance. Refinancing activity made up 75.2% of total loan applications, compared to 70.5% a week earlier.
"Participants in our survey indicated that about 32% of this refinance volume was for HARP loans," said Jay Brinkmann, MBA's chief economist and senior vice president of research and education. "While purchase activity declined sharply for the week, this was mostly due to a 23% drop in applications for FHA purchase loans. This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week."
He added, "This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010. The demand for conventional purchase loans was down only slightly."
The average interest rate for the 30-year FRM with a conforming loan balance ($417,000 or less) declined from 4.1% to 4.05% week over week. For the 30-year FRM on jumbo loans (above $417,500), the average interest rate fell from 4.43% to 4.36%.
In addition, the average rate on a 30-year FRM backed by the FHA declined from 3.87% to 3.83%, while the average interest rate on a 15-year FRM declined from 3.37% to 3.33%. The 5/1 ARM declined from 2.89% to 2.83%.