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Mortgage rates remain uncomfortably high for many potential home buyers and sellers, but recent declines have helped boost demand for refinancing significantly.
The Mortgage Bankers Association said Wednesday that refinancing applications surged 35% last week, when rates on 30- and 15-year fixed-rate mortgages averaged their lowest level in more than a year, according to Freddie Mac.
A row of identical houses and yards in Queens, New York, on April 7. (Lindsay Nicholson/UCG/Universal Images Collection via Getty Images/Getty Images)
The bankers’ association said the surge in refinancing demand was the driving force behind the increase in overall mortgage application demand, which rose 15% during the week. By comparison, purchase applications rose only 3%.
Data from the Federation of Commercial Banks showed that demand for refinancing rose by 118% year-on-year.
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There was a particular spike in applications for refinancing Veterans Affairs loans, which were up 77% from last week.
“Given the sensitivity of the bond market to data, this should only be a temporary spike in refinancing applications, with mortgage rates down about 0.625 percentage points from their Aug. 2 highs,” said Emily Overton, capital markets analyst at Veterans United Home Loans, a large veterans’ affairs lender.
Homes in Hercules, California, on August 16, 2023. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
Overton noted that, according to industry data, an estimated 200,000 VA borrowers have mortgage rates of 7% or higher. The latest data from Freddie Mac on Thursday showed the average rate on a 30-year fixed mortgage was 6.49% this week.
The surge in refinancing demand was the driving force behind the increase in overall mortgage application demand, which rose 15% over the week. By comparison, purchase applications rose just 3%.
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According to Holden Lewis, mortgage expert at NerdWallet, the surge in refinancing over the past few weeks is a direct response to the sharp drop in interest rates and not because people are looking to cash out their stocks.
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““Most of the increase in refinancing is coming from what’s called a rate-and-term refinance,” Lewis told Fox Business Network. “These are homeowners who just want to get a lower monthly payment on their home. They’re not looking to pay off high-rate credit card debt.”
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However, he noted, “Many people are refinancing their mortgages for more than they owe so they can pay off credit cards and other high-interest debt.“
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