Record Low Interest Rates Prompt Refinance Madness

The Mortgage Bankers Association [MBA] reported Wednesday that the average rate for 30-year fixed-rate mortgages dropped to 5.04% last week from 5.18% the previous week. The contract rate is the lowest recorded in MBA’s survey since the record low of 4.99% for the week ending June 13, 2003.

As mortgage rates tumble an increasing number of Americans are applying for new home loans and refinancing their existing ones. According to the MBA’s Market Composite Index, which includes both purchase and refinance loans, mortgage loan application volume spiked by 48% on a seasonally adjusted basis, and more than 80% were from homeowners looking to lower housing costs.

For the week ended Dec. 19 mortgage loan application volume surged to 1245.4 from 841.4 one week earlier, registering the highest weekly level in over five years. On an unadjusted basis the Index increased 124.6% year-over-year.

Many borrowers fueled by Fed’s plan last month to buy up to $600 billion in mortgage-backed securities issued by Fannie Mae (FNM) and Freddie Mac (FRE), and record low interest rates, are coming out in droves to refinance their mortgages. The refinance share of mortgage activity increased to 83.2% of total applications from 76.9% the previous week.

“It’s snowing loans,” said Steve Habetz, a Connecticut mortgage broker, “and they’re all refis.” [CNNMoney]

The average contract on 15-year fixed-rate mortgages averaged 4.91%, down from 4.93% the week before. And one-year ARMs dropped to 6.36%, from 6.63%. The only component to fall, notes MBA, was the Government Purchase Index, which largely tracks FHA loans. It decreased 3.4%.

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