Mortgage Applications Today: Refinancing Drops 21% After Mortgage Rates Tick Up

The number of people applying for a mortgage decreased 12.7% for the week ending Sept. 26, according to the Mortgage Bankers Association. The decrease in home loan applications comes as mortgage rates increased to its highest level in three weeks.

But refinancing took the biggest hit. The Refinance Index decreased 21% from the previous week and was 16% higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1% from one week earlier.

Mortgage rates rose last week for the first time in over a month. The average rate on 30-year fixed home loans increased to 6.3% for the week ending Sept. 25—that's up from 6.26% the week prior, according to Freddie Mac.

The Market Composite Index, a measure of mortgage loan application volume, decreased 12.7% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 13% compared with the previous week. 

The unadjusted Purchase Index decreased 2% compared with the previous week and was 16% higher than the same week one year ago.

The largest share of decreased activity came from homeowners looking to refinance. The refinance share of mortgage activity decreased to 55% of total applications from a 60.2% increase the previous week. The adjustable-rate mortgage (ARM) share of activity also decreased to 8.4% of total applications.

"Mortgage rates increased to their highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data," said Joel Kan, MBA’s vice president and deputy chief economist. "After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizeable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived."

The Federal Housing Administration (FHA) share of total applications increased to 16.8% from 15.7% the week prior.

Veterans Affairs share of total applications decreased to 16.2% from 17.5% the week prior. The USDA share of total applications remained unchanged at 0.4% from the week prior.

“With the 30-year fixed rate now at 6.46 percent, refinance activity declined for all loan types, including a 22 percent decrease in conventional refinances and 27 percent decrease in VA refinances," said Kan. "The average loan size for refinances dropped to $380,100 from $461,300 two weeks ago as these higher rates eliminated the refinance incentive for many borrowers with large loans.”

Contract rates

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) increased to 6.46% from 6.34%, with points increasing to 0.61 from 0.57 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) increased to 6.54% from 6.44%, with points increasing to 0.40 from 0.34 (including the origination fee) for 80% LTV loans. The effective rate increased from last week. 

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 6.24% from 6.14%, with points increasing to 0.76 from 0.74 (including the origination fee) for 80% LTV loans.  The effective rate increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.76% from 5.70%, with points decreasing to 0.68 from 0.69 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The average contract interest rate for 5/1 ARMs increased to 5.74% from 5.53%, with points decreasing to 0.46 from 0.49 (including the origination fee) for 80% LTV loans. The effective rate increased from last week. 

“Purchase applications were down slightly over the week after three consecutive increases, but the strength of the purchase market has also been impacted by other factors such as broader economic conditions, the health of the job market, and housing inventory," Kan said.

Mortgage rates calculated

Mortgage rates are calculated by various factors in the economy, and the length of your loan will also figure into the mortgage rate you qualify for.

The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, according to Fannie Mae. As the yield on the 10-year Treasury note moves, mortgage rates follow.

The yield on the 10-year Treasury note is determined by expectations for shorter-term interest rates in the economy over the duration of a bond, plus a term premium.