On the heels of a bumper week for mortgage activity following the Labor Day holiday, mortgage applications spiked 29.7% for the week ending Sept. 12, according to the latest figures from the Mortgage Bankers Association (MBA).
Mortgage rates falling to 11-month lows spurred the surge in activity as tracked by the MBA’s Market Composite Index, a measure of mortgage loan application volume. On an unadjusted basis, the index spiked 43% compared with the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances slid to 6.39% from 6.49% for the week ending Sept. 12, according to MBA data, while average rates for 30-year fixed mortgages backed by the Federal Housing Administration (FHA) decreased to 6.14% from 6.27%.
“Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,” said Mike Fratantoni, senior vice president and chief economist at the MBA, in a press release. He said that the average loan size on last week’s refinances reached its highest level in 35 years of MBA mortgage application surveys.
The refinance share of mortgage activity rose to 59.8% of overall applications from 48.8% the previous week, and purchase activity also increased. The seasonally adjusted Purchase Index increased 3% from one week earlier, while the unadjusted Purchase Index increased 12% from the previous week and 20% from the same week one year ago.
The share of adjustable-rate mortgages (ARM) continued to exceed historical norms, rising to their highest levels since 2008 at nearly 13% of total applications. Refinance applicants in particular opted for ARMs, Fratantoni noted.
“Notably, ARMs typically have initial fixed terms of five, seven, or ten years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did,” he explained. Underlying the rising ARM share is better financing terms for borrowers who can receive rates as much as 75 basis points lower than for 30-year fixed-rate loans.
The average contract interest rate for 5/1 ARMs — whereby a borrower pays a fixed mortgage rate for the first five years of the loan term, after which it adjusts on an annual basis — decreased to 5.65% from 5.77%, according to MBA data.
The FHA share of overall applications decreased last week to 16.3% from 18.5% the week prior, while the share of applications backed by the Department of Veterans Affairs increased marginally to 15.8% from 15.3%.
