Mortgage Demand Rises as Borrowers Seek Lower Rates & ARM Options

The mortgage landscape is showing a shift in borrower behavior as conventional loan rates hold steady, while demand for alternative loan products rises. Overall mortgage application volume saw a slight increase last week, but the details reveal a more nuanced picture of affordability challenges and evolving strategies among homebuyers.

Demand Shifts Amidst Rate Stability

Total mortgage application volume increased by 0.3% last week, according to the Mortgage Bankers Association. However, the average contract interest rate for 30-year fixed-rate mortgages remained at 6.21% for loan balances of $832,750 or less, with points holding at 0.56. This stability isn’t translating into increased demand for these traditional mortgages.

Did You Know? Applications to refinance a home loan are 101% higher than they were the same week last year.

Refinance Activity Surges

Applications to refinance a home loan rose 1% for the week, significantly outpacing last year’s numbers – up 101% year-over-year. This surge is largely attributed to the fact that mortgage rates were 74 basis points higher a year ago, making a refinance worthwhile for many borrowers if they can save 75 basis points.

Purchase Applications Decline, Alternatives Gain Traction

While refinance activity is up, applications for a mortgage to purchase a home fell 2% for the week, and are only 4% higher than this time last year. This decline coincides with a still-pricey housing market and a recent pause in the growth of housing supply.

Expert Insight: The increase in FHA and ARM applications suggests borrowers are actively seeking ways to navigate affordability constraints, even if it means considering loan products with different terms and potential risks.

Borrowers are increasingly turning to FHA loans, with applications increasing as FHA rates remain 20 basis points lower than conforming 30-year fixed rates. The share of adjustable-rate mortgages (ARMs) is growing, reaching a seven-week high of 8%, as ARM rates are almost a full percentage point lower than fixed rates.

Economic Data Influences Rates

Mortgage rates experienced a slight dip on Tuesday following a weaker-than-expected retail sales report. Market attention is now focused on the upcoming monthly employment report, with analysts suggesting the market may be anticipating a potentially negative report. Matthew Graham, chief operating officer at Mortgage News Daily, noted that a weaker jobs report could lead to further rate declines, while a strong report could cause rates to rebound.

Frequently Asked Questions

What is a basis point?

A basis point is one-hundredth of a percentage point. So, 74 basis points is equal to 0.74%.

What is an ARM?

An adjustable-rate mortgage (ARM) is a mortgage where the interest rate can change periodically, based on an underlying benchmark.

What is a conforming loan balance?

A conforming loan balance is $832,750 or less, as stated in the report.

How might upcoming economic data, particularly the employment report, influence your approach to the housing market?