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Falling mortgage rates drive up home sales and refinances

Falling mortgage rates drive up home sales and refinances
Falling mortgage rates drive up home sales and refinances

Mortgage rates that have dropped since mid-August and are hitting new all-time lows are whipping up borrowing among both homebuyers and homeowners, a lenders trade group is reporting.

Applications for "purchase loans" and refinances are rising by double-digit percentages compared to this time last year, with refi activity boosted by record-low rates for 15-year fixed-rate loans.

Mortgage rates have been down in the weeks since a federal agency postponed a new refinance fee to late fall. Borrowers may be trying to hurry before the fee starts putting pressure on rates to go higher.

As rates tumble, refinances rise

Overall mortgage applications increased 2.9% in the week ending Sept. 4 as the rates on home loans slid, the Mortgage Bankers Association, or MBA, reported on Wednesday.

Rates on 30-year fixed-rate mortgages fell to an average 3.07% in the MBA's weekly study, and the average for a 15-year loan hit a new survey low of 2.62%.

Note that other surveys are showing even lower rates. For example, mortgage company Freddie Mac says 30-year fixed mortgages are averaging 2.93%. And, borrowers who are all-star comparison shoppers can find way better rates than the averages.

Applications for refinances rose 3% last week and were up an impressive 60% compared to the same week in 2019, the MBA says.

Before last week, refi demand slumped for three straight weeks. But there are still plenty of homeowners who could benefit by trading in their old home loans for a new, lower-interest model.

Nearly 18 million mortgage holders with solid credit scores and home equity could refinance — and slash their interest rates by three-quarters of a point or more (like from 3.75% down to 2.95%), mortgage data firm Black Knight said Tuesday. That would give them monthly savings averaging a nothing-to-sneeze-at $290.

Low rates also spark more homebuyer borrowing

African American young happy married couple in medical masks standing outdoor at new house with female real-estate agent smiling to camera. Sold home. Pandemic concept. Buying dwelling.
M_Agency / Shutterstock

Homebuyers love low interest rates, too.

Mortgage applications for the purchase loans used by homebuyers grew 3% last week and were up 40% from a year ago.

Coronavirus lockdowns delayed the usual spring homebuying season for several months. Now, buyers are out in force and looking to take advantage of discounted mortgage rates, though they're having to contend with shortages of homes for sale and rising prices.

As a result, the average loan size for a purchase mortgage has ballooned to an all-time high of $368,600, according to MBA data.

Listing prices for houses are rising at their fastest pace in three years, while listings themselves are down 12% from last year, says Realtor.com. The typical home for sale in the U.S. is being snapped up in 56 days, five days faster than at this time in 2019.

Approaching fee has borrowers under the gun

The increases in mortgage applications may be a sign that some borrowers are trying to avoid a new refinance fee that threatens to push mortgage rates higher this fall.

Fannie Mae and Freddie Mac — government-sponsored mortgage giants that buy or back most U.S. home loans — say they need the revenue from the fee to offset losses from defaults and other issues stemming from the COVID-19 pandemic.

Lenders were told in mid-August that they'd have to pay the companies an extra 0.5% on the value of refi loans starting on Sept. 1, and mortgage rates immediately jumped in anticipation. They came back down late in August after a federal agency put the fee on hold until Dec. 1.

But experts say lenders may begin rolling it into their rates as soon as October.

So if you're a would-be homebuyer, or a homeowner who could save by refinancing, you may want to start shopping for one of today's deeply cheap mortgage rates ASAP.

Seek out mortgage offers from several lenders, and compare them side by side to find the best deal where you live and for a person with your credit profile.

Don't forget to use those same comparison shopping skills with your homeowners insurance. Check rates from multiple insurers — to make sure you don't pay too much for your coverage.