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Refinance applications fall as mortgage rates rise

FHA and VA loans saw an increase in applications

Mortgage applications decreased 3.9% for the week ending Aug. 13 compared to the week prior and fewer borrowers opted to refinance, according to the latest report from the Mortgage Bankers Association.

Ten-year Treasury yields rose overall but tapered off slightly at the end of last week, and 30-year mortgage rates tracked by the MBA reached 3.06%. That deterred some borrowers from refinancing and contributed to an overall slowdown in mortgage applications.

“Mortgage rates were at their highest levels in around a month, with the 30-year fixed rate increasing above 3% to 3.06%. Mortgage rates followed an overall increase in Treasury yields last week, which started higher from the strong July jobs report before slowing because of weaker consumer sentiment and concerns about rising COVID-19 cases,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“The increase in mortgage rates caused a 5% decrease in refinancing, driven by a 7% drop in conventional refinance applications. Even though rates are 7 basis points lower than the same week a year ago, the refinance index is around 8% lower,” said Kan. “The eligible pool of homeowners who stand to benefit from a refinance is smaller now.”

The refinance share of mortgage activity decreased to 67.3% of total applications from 68.0% the previous week.

How mid-year market shifts are impacting originators

The greater need for cash-out refinances drives originators to prepare with diverse product offerings. Additionally, originators will now need to have a way to qualify self-employed borrowers who may need to rely on bank statements to qualify for a mortgage. 

Presented by: FGMC

The share of applications for conventional purchase loans decreased from the week prior, while Federal Housing Administration and Veterans’ Affairs loans, typically popular with first-time homebuyers, gained a larger share.

FHA applications rose to 9.4% from 8.9% the week prior, while the VA share of total applications increased to 10.3% from 9.6% the week prior. The share of applications for United States Department of Agriculture loans decreased to 0.4% from 0.5% the week prior. The adjustable-rate mortgage share of activity stood unchanged for the week at 3.2% of total applications.

And although average loan sizes continued to decrease, they still remain at historic highs. The average loan size for purchases was $339,200, while for refinances the average size was $393,700.

“Despite a second-straight weekly decrease, average loan sizes remain close to record highs,” Kan said. “This is a continuing sign that sales prices are still elevated, driven by stiff competition leading to accelerating home-price growth.”

Here is a more detailed breakdown of this week’s mortgage applications data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.06% from 2.9%.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.19% from 3.15%.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.15% from 3.06%.
  • The average contract interest rate for 15-year fixed-rate mortgages increased to 2.41% from 2.35%.
  • The average contract interest rate for 5/1 ARMs increased to 2.90% from 2.52%.

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