COVID-19 uncertainty gives boost to mortgage refinances as interest rates fall
Mortgage applications are on the rise for refinances and mortgage purchases as interest rates decrease. (iStock)
Mortgage purchase and refinance applications were up 1.6% for the week ending Aug. 20, 2021 compared to the week prior, new data from the Mortgage Bankers Association (MBA) showed.
The MBA’s Market Composite Index indicated that the increase in volume was driven by a 1% weekly rise in the refinance market index and a 3% weekly increase in purchase loan applications, according to the latest MBA Weekly Mortgage Applications Survey.
This is because economic disruptions have once again taken their toll on interest rates and benefited homeowners and homebuyers, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting. If you want to see how much you could save on your monthly mortgage payment, visit Credible to find your personal rate.
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Rise in COVID-19 cases brings market uncertainty
The drop in Treasury yields brought on by anxiety over the spread of COVID-19 is driving interest rates lower and dampening economic activity. But it is also creating an increase in refinance activity.
"Treasury yields fell last week, as investors continue to anxiously monitor if the rise in COVID-19 cases in several states starts to dampen economic activity," Kan said. "Mortgage rates slightly declined as a result, with the 30-year fixed-rate decreasing for the first time in three weeks. Lower rates led to an increase in refinance applications, with government loan applications jumping 10% to the highest level since May 2021."
Although refinances are increasing because mortgage purchase applications also went up, the refinance share of mortgage activity remained unchanged from the previous week, at 67.3%.
Refinancing your mortgage while rates are at record lows can reduce your monthly payment by up to hundreds of dollars. Visit Credible to use a mortgage calculator and find out how much you could save before starting your mortgage transaction.
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Mortgage interest rates drop as first-time homebuyers enter market
For the first time in three weeks, the MBA reported a decrease in interest rates. The average rate on a 30-year fixed-rate mortgage decreased to 3.03%, down from 3.06%. The average interest rate for a 15-year fixed mortgage also dropped from 2.41% to 2.38%.
In terms of mortgage types, the FHA share of total mortgage applications increased to 11% from 9.4% the week before. The VA share of total mortgage applications decreased from 10.3% to 10%, and the USDA share of total applications remained unchanged from 0.4%.
This rise in FHA purchase applications, along with other contributing factors, could indicate a rise in first-time homebuyers entering the housing market. First-time homebuyers have struggled over the past year as home prices reached record highs. Just as refinance applications increased, mortgage purchase applications also posted strong gains.
"Purchase applications for both conventional and government loans also increased," Kan said. "The purchase index was at its highest level since early July, despite still continuing to lag 2020’s pace. There was also some easing in average loan sizes, which is potentially a sign that more first-time buyers looking for lower-priced homes are being helped by the recent uptick in for-sale inventory for both newly built homes and existing homes."
Potential buyers and homeowners who are interested in purchasing a home or refinancing their current home loan can visit Credible to compare multiple lenders at once and choose the one with the lowest mortgage rate for you. Today’s low rates can increase your purchase options since they partially offset a home’s high prices, and you can get prequalified in minutes without affecting your credit score.
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