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Mortgage rates are still uncomfortably high for many would-be homebuyers and sellers, but recent declines have contributed to a significant boost in demand for refinancing.
The Mortgage Bankers Association (MBA) reported Wednesday that refinancing applications soared 35% last week, when rates for the average 30-year and 15-year fixed-rate mortgages hit their lowest point in more than a year, according to Freddie Mac.
A row of identical houses and yards, Queens, New York, (Lindsey Nicholson/UCG/Universal Images Group via Getty Images / Getty Images)
The surge in refinancing demand was the driving force behind the increase in overall demand for mortgage applications, which was up 15% on the week, the MBA said. For comparison, purchase applications only increased by 3%.
Year-over-year, refinancing demand was up 118%, MBA data showed.
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There was a particular jump in refinance applications for VA loans, which were up 77% from last week.
“Given the bond market’s sensitivity to data, this should only be a temporary bump in refinance applications, as mortgage bond prices have come down about 0.625 points from their highs on August 2nd,” said Emily Overton, Capital Markets Analyst at major VA lender Veterans United Home Loans.
Homes in Hercules, California, US, on Wednesday, Aug. 16, 2023. The average 30-year mortgage rate rose slightly this week but is at its lowest level in more than a year. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
Overton noted that, according to industry data, it’s estimated that approximately 200,000 VA loan borrowers have a mortgage rate of 7% or higher. The latest data from Freddie Mac released Thursday showed that the average 30-year fixed rate mortgage is at 6.49% this week.
The surge in refinancing demand was the driving force behind the increase in overall demand for mortgage applications, which was up 15% on the week. For comparison, purchase applications only increased by 3%.
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According to Holden Lewis, NerdWallet’s mortgage expert, the surge in refinances over the past few weeks is a direct response to the sharp decline in interest rates rather than folks looking to cash out their equity.
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“Most of the jump in refinancing comes from what are called rate-and-term refinances,” Lewis told FOX Business. “These are homeowners who merely want to snag a lower monthly payment on their house. They aren’t looking to pay off high-rate credit card debt.”
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Still, he noted, “Plenty of people do refinance their mortgages for more than they owe so they can pay off their credit cards and other high-interest debt.“