Home borrowing starts the year off strong

Mortgage loan agreement application with  key on house shaped keyring
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Mortgage applications are up more than 7% this week.

Overall mortgage applications increased 7.2% in the week ending Jan. 24, the Mortgage Bankers Association reported Wednesday.

The trade group says it adjusted the data to account for the Martin Luther King Jr. holiday, which came at the start of the week.

Borrowing has gotten 2020 off to a strong start, and that continued amid last week's falling mortgage rates, says Joel Kan, vice president of forecasting for the Mortgage Bankers Association.

"Rates were driven lower by investors' increased concern about the economic impact from China's coronavirus outbreak, in addition to existing concerns over trade and other geopolitical risks," he says, in a statement.

Refinance applications jumped 8% and were up a stunning 146% from the same week a year earlier — meaning lenders were receiving about two and a half times as many refi applications as in mid-January 2019.

Homeowners are still finding opportunities to save through refinancing, even if they closed on their current mortgage as recently as 2018. You can compare refi offers from multiple banks with the help of the Mortgage Research Center.

Refinance applications accounted for 60.4% of all mortgage activity last week, down from 61.6% the previous week.

This calculator can show you the monthly mortgage payment that's possible with today's low mortgage rates:

Plunging mortgage rates bring out the borrowers

a decline in mortgage rates
Andrii Yalanskyi / Shutterstock

Applications for mortgages to buy homes — so-called purchase loans — rose 2% and were up 17% compared to the same week a year ago.

"Thanks to low rates and the healthy job market, purchase activity continues to run stronger than in 2019," Kan says.

Home loan applications are running higher than a year ago because mortgage rates are much lower. The most recent survey from mortgage giant Freddie Mac put the average for a 30-year fixed-rate mortgage at 3.60%, down almost a full percentage point from last year at this time, when the typical rate was 4.45%.

Current rates are the lowest in about three months and are moving toward the all-time low of 3.12% that was reached in November 2012, Freddie Mac says.

Rates on 15-year fixed-rate mortgages fell last week to an average 3.04%, from 3.09% the week before. Those loans are popular among homeowners who refinance. One year ago, the average on a 15-year was 3.88%.

And, the average initial rate on a 5/1 adjustable-rate mortgage dropped to 3.28%, down from 3.39% a week earlier and way down from last year's 3.90%. ARMs, as those loans are known, are fixed for five years and then can adjust up or down every year thereafter.

Current average mortgage rates

Loan Type Interest Rate
30-year fixed-rate mortgage 3.26%
15-year fixed-rate mortgage 2.73%
5/1 adjustable-rate mortgage 3.17%
Source: Freddie Mac Primary Mortgage Market Survey, May 7, 2020.

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The outlook for mortgages

Business team investment trading do this deal on a stock exchange. People working in the office.
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Coronavirus fears have investors moving money from stocks into bonds.

When Freddie Mac releases a new survey on Thursday, it's likely to show a substantial drop in mortgage rates because the yield on 10-year Treasury bonds has been plummeting amid the coronavirus fears.

Skittish investors have been moving their money from stocks into bonds as a safe haven. Rising demand for Treasuries is pushing their yields (interest rates) lower, and mortgage rates tend to follow the same track.

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

Attractive rates are boosting home sales. Sales of existing U.S. homes climbed 3.6% from November to December and hit their highest level in two years, and sales of new homes last month were up 23% from a year earlier.

Builders are straining to keep up with the demand for houses. New construction soared almost 17% last month, compared to November, and hit a 13-year high.

Check out today's best mortgage rates where you live.

About the Author

Doug Whiteman

Doug Whiteman

Editor-in-Chief

Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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