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Homeowners Hungry for Low Mortgage Rates Push Refinances Near a 7-Year High

Doug Whiteman
Homeowners Hungry for Low Mortgage Rates Push Refinances Near a 7-Year High

The lowest mortgage rates in years have homeowners racing to replace their old mortgages with new models souped up with lower borrowing costs. As a result, demand for refinances is booming.

Applications for those loans are at their highest level in nearly seven years — and the numbers are more than three times greater than what lenders were seeing one year ago, a trade group says.

Homebuyers are borrowing at a good clip, too, according to a new report.

Refi-mania grips homeowners

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Homeowners have been in a frenzy to refinance their loans.

Overall mortgage applications rose 1.1% during the week ending Feb. 7, the Mortgage Bankers Association reported Wednesday.

"The mortgage market continues to be active in early 2020, as applications increased for the third straight week," says Joel Kan, the trade group's vice president of forecasting.

Once again, the increase was led by strong demand for refinance loans. Refi applications went up 5% to the highest level since June 2013, and the volume was 207% greater than a year ago — in other words, more than triple the rate reported in early February 2019.

The refinance frenzy is being fueled by the lowest mortgage rates in three years.

Homeowners are finding opportunities to cut their monthly payments by refinancing, even if their current mortgages were taken out as recently as 2018.

The share of mortgage applications for refinance loans keeps climbing. Those accounted for 65.5% of all mortgage activity last week, the mortgage bankers say, up from 64.5% the previous week. Data firm Black Knight has estimated that 11.3 million American homeowners could save an average $268 a month by doing a refi.

Homebuyers are eager to borrow, too

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Demand for mortgages to buy homes is running at a healthy level.

Applications for mortgage "purchase loans" to buy homes dropped 6% last week, but that borrowing remained at a healthy level.

"Last month was the strongest January for purchase applications since 2009, which is perhaps a sign that mild weather brought out prospective buyers earlier than normal," says Kan. "Despite a decline last week, purchase activity was still up almost 16% from a year ago."

Though first-time homebuyers are having difficulty finding homes they can afford, buyers interested in higher-priced houses have been scooping those up — with help from cheap mortgage rates.

Rates last week were down for the third consecutive week. Thirty-year fixed-rate mortgages were averaging 3.45% — the best since the fall of 2016 and the lowest ever for February in the nearly 50-year history of the weekly rates survey from mortgage company Freddie Mac.

One year ago, the benchmark mortgage rate was nearly a full point higher, at an average 4.41%.

Rates on 15-year fixed-rate mortgages dropped below 3% last week, to an average 2.97%. Those loans are a popular refinance option.

But the average initial rate on a 5/1 adjustable-rate mortgage increased to 3.32%, from 3.24% a week earlier. "ARMs" are fixed for five years, and after that the rates can adjust up or down each year.

Coronavirus is helping to keep mortgage rates low

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Coronavirus fears are contributing to the decline in mortgage rates.

Mortgage rates have been tumbling as investors jump on board Treasury bonds as a safe haven for their money amid all of the uncertainty over the spreading coronavirus. As demand for Treasuries rises, their yields (interest rates) fall, and mortgage rates tend to move along the same track.

Federal Reserve Chairman Jerome Powell told Congress this week that the deadly outbreak poses danger for the global economy. The Fed has been keeping interest rates low.

Freddie Mac releases a fresh mortgage rates update on Thursday. Kan says his data indicates rates are moving higher this week.

Homebuyers and homeowners are likely to find attractively low mortgage rates throughout 2020. A forecast from Freddie Mac's corporate sibling, Fannie Mae, predicts 30-year mortgage rates will average just 3.7% this year, down from 3.9% in 2019.