In fact, mortgage lenders set a new record in terms of average loan size for refinances last week at $316,000, according to the MBA. In addition to a jump in conventional refinance applications, Veterans Administration refinance volume increased by 28 percent, and the average loan size for a VA loan refinance increased to its highest on record.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since April, at 3.83 percent, from 3.91 percent, with points decreasing to 0.36 from 0.41 (including the origination feel) for 80 percent loan-to-value ratio loans.
The average contract interest rate for a 30-year fixed-rate jumbo loan fell to 3.74 percent. Jumbo mortgages used to carry higher rates, because they were considered higher risk. Now they are cheaper because of higher fees from Fannie Mae and Freddie Mac on conforming loans and because of straight out competition among banks for top borrowers.
"Big banks have been engaged in a bit of an arms race to secure the business of wealthy clients, and jumbo loans are one of the most popular avenues to get new clients in the door," said Matthew Graham, chief operating officer of Mortgage News Daily. "In some cases, banks explicitly offer lower rates for clients who pledge a certain amount of assets to be managed by the bank that is originating the loan."
The increased volume for all refinances, which is now 50 percent higher than just four weeks ago, was unexpected, as most thought interest rates would rise after the Federal Reserve increased its funds rate in December. The surprise drop in rates has some borrowers in a nervous conundrum.