Mortgage activity took a slight breather last week, but applications for government-backed loans went on a tear after the government insurer of home loans lowered annual insurance premiums by half a percentage point.
The Federal Housing Administration accepts mortgages with down payments as low as 3.5 percent.
Total mortgage application volume increased 1.3 percent on a seasonally adjusted basis last week from one week earlier, according to the Mortgage Bankers Association.
Applications to refinance a loan continued their surge, up another 3 percent week to week, while applications for a loan to purchase a home fell 2 percent.
Purchase applications are just 3 percent higher than a year ago. Most of the gains are coming from FHA volume.
"Following several weeks of already elevated refinance activity due to falling interest rates, FHA refinance applications increased 76.5 percent," said Lynn Fisher, MBA's vice president of research and economics.
"Conventional refinance volume was up only 0.5 percent for the week. FHA purchase applications were also up 12.4 percent, despite a decrease in purchase applications in the rest of the market."
Clearly the drop in insurance premiums, while a bit less than a $100 monthly savings for the average borrower, is bringing more people back to the mortgage table, be it to refinance or buy a home. The added incentive of falling mortgage interest rates is not hurting either.
Combined, the two are not just providing savings, but giving buyers more purchasing power.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.79 percent, the lowest level since May 2013, from 3.83 percent, according to the MBA. The average interest rate for FHA loans fell to 3.69 percent from 3.71 percent.
The FHA share of total applications rose to 13.1 percent of total mortgage applications last week, up from 9.1 percent the previous week.