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Record-low mortgage rates set off a blast of mortgage applications

Doug Whiteman
Record-low mortgage rates set off a blast of mortgage applications

As mortgage rates keep falling through the floor, demand for home loans is going through the roof.

Lenders say applications for mortgages were piling in last week while homebuyers and homeowners flocked to take advantage of mortgage rates that have forced them to keep scratching out the entries in the record books. Average 30-year fixed mortgage rates dropped below 3% for the first time ever.

Homebuyers applied mortgages at a rate not seen since 2009, and homeowners requested more than twice as many refinance loans as they did a year ago.

Homebuying gets hotter

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Overall mortgage applications jumped 8% in the week ending June 12, with demand for loans to buy homes rising 4%, the Mortgage Bankers Association, or MBA, reported on Wednesday. Applications for "purchase loans" were up 21% from a year ago.

"Purchase applications increased to the highest level in over 11 years and for the ninth consecutive week," says Joel Kan, the MBA's vice president of forecasting. "The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence."

If you're one of those buyers who were holding back during coronavirus lockdowns, be prepared to encounter bidding wars as you wade into the housing market, says real estate brokerage Redfin.

Nearly half of all offers placed by Redfin agents faced competition in May, largely due to shortages of homes for sale in lots of places.

“We’re seeing a frenzy,” says Boston Redfin agent Delince Louis. "Any home below $500,000 is receiving multiple offers; we just don’t have the supply to meet the demand."

Low mortgage rates are encouraging buyers to get into the game. The MBA says 30-year mortgage rates are averaging 3.30% in its survey, but Mortgage News Daily reported that its survey of lenders showed the typical rate last week sank all the way down to 2.94%.

Refinancers are on a rampage

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Homeowners haven't been dozing off while mortgage rates have been cratering from one record low to another. Refinance applications surged 10% last week and were up 106% from a year ago, the MBA reports.

"Refinancing continues to support households' finances, as homeowners who refinance are able to gain savings on their monthly mortgage payments in a still-uncertain period of the economic recovery," says Kan.

Refinances were the source of 63.2% of all mortgage applications last week, up from 61.3% the previous week.

Still, many homeowners have been slow to refi and take a whack at their monthly payments and total interest costs.

The mortgage data firm Black Knight said last week that 14 million mortgage holders were in a good position to refinance and could save a total of $3.95 billion a month by taking out new loans.

That works out to an average $282 in monthly mortgage savings per borrower.

Black Knight says you're an excellent refinance candidate if you've got a 30-year mortgage, a credit score of 720 or higher, at least 20% equity in your home, and a mortgage rate you could easily chop down by at least three quarters of a point (0.75) by refinancing.

Thirty-year mortgage rates are likely to stay down in their Grand Canyon and will average an incredible 2.9% throughout next year, says a new survey from mortgage company Fannie Mae.

But if you're a would-be homebuyer or refinancer and are salivating over today's drop-dead mortgage rates, you shouldn't hesitate. Because rates are unpredictable animals, and nobody really knows where they're going.

"Each time we hit all-time lows, the incremental improvements get smaller and smaller, and the risks increase for a bigger-picture bounce [higher]," writes Matthew Graham, chief operating officer of Mortgage News Daily.