Mortgage rates continued their slide to wind up five basis points down week over week. The 30 year fixed rate mortgage came in at 3.920% during the weekly rate survey. The drop represents a decline of 61 basis points from the start of the year, or a tad less than five-eighths (.625%) percent but more than the half-point (.500) mark that many consumers use in gauging the motivation to refinance their existing mortgage.
The impact is tremendous to the economy or your household budget. As an example; the average U.S. mortgage amount is $157,000. Using the current rate comparison, year to date the difference is $56 each month. While that amount doesn’t appear earth-shattering, it provides more disposable income or more savings and investment depending on one’s circumstance. Taking a more focused look, the Mortgage Bankers of America (M.B.A.) reported the recent mortgage balance being refinanced the past week was a whopping $307,000. That difference in payment skyrockets to over $100 per month, or $109.
As predicted the drop in mortgage rate has triggered a rise in mortgage applications. Week over week they rose 23%, according to MBA stats.
Refinance versus purchase
The numbers for those refinancing are encouraging as the rate drop has motivated many who have been sitting on the sidelines waiting for their magic rate number. Additionally, because the decline has been steady it has also allowed those who have been positioning themselves due to credit or valuation issues to take advantage of this window.
Purchase activity declined week over week. These are the transactions many lenders are scrambling to attract because they are critical in sustaining business growth. Typically lenders try to have at least 35-40 percent of overall volume dedicated to purchases. That is because refinance transactions are vulnerable to rate movement because the borrower already owns the home and the result could be holding off the transaction or negotiating a lower rate, if they keep dropping. Whereas, purchase transactions are guided by closing timelines so they are more stable.
Either way just like consumers, lenders welcome the new business as during the past several weeks volumes have been stagnant. As for the future, Wall Street experts have mentioned the market is responding to concern about economic growth, even though there has been evidence of steady improvement since the housing crisis.
Freddie Mac (the Federal Home Loan Mortgage Corporation) publishes the weekly rate survey. Data is compiled from its network of lenders across the nation or those who sell mortgages they originate. M.B.A. publishes the application survey as data is tracked from member companies who produce mortgages at the consumer level.