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Home mortgage applications increased dramatically last week, as a strong sell-off in the U.S. stock market pushed interest rates lower briefly.
Jumbo loan borrowers were especially enticed by the potential savings. An index of application volume jumped 11.3 percent on a seasonally adjusted basis for the week ending August 28th versus the previous week, according to the Mortgage Bankers Association (MBA). Volume is now up 30 percent from a year ago.
"Although mortgage rates were unchanged for the week, Treasury rates were down sharply early in the week due to the global stock market rout and this led to a significant increase in application volume," said Mike Fratantoni, chief economist for the MBA.
Refinance applications, which are most rate-sensitive, increased 17 percent from the previous week to the highest level since April, 2015. Loan applications to purchase a home, which have been less responsive to rates, rose 4 percent for the week and are now 25 percent higher than one year ago.
This as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.08 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The rate had, however, moved an eighth of a percent lower for a few days before regaining ground, according to Mortgage News Daily.
Borrowers with larger loans were drawn in most by the drop in rates, as they typically stand to save more on such moves.
"The average size of a refinance application increased to its highest level since January. Somewhat surprisingly, the ARM [Adjustable Rate Mortgage] share increased last week to its highest level since last October. This could be driven by the more sensitive response from jumbo borrowers, who tend to favor ARMs to a greater extent," noted Fratantoni.
Rising home values may also be reassuring more borrowers, making them feel safer about moving to adjustable-rate loans, which offer lower rates but with more risk. A rush to security following the housing crash has had the vast majority of borrowers choosing fixed rate loans.