For the last two weeks, it is being noticed that there has been a rise in the mortgage interest rates. The long term as well as short term mortgage interest rates increased in the past week. The 30 years fixed rate mortgage which had an interest rate of around 3.76% increased to that of 3.86%. The Jumbo fixed rate mortgages also showed an increase where the rates rose to 3.86% from that of 3.53%. In the past week, the average rate for FHA mortgages increased to 3.62% from 3.53%. The points also increased from 0.49 to 0.50. In case of adjustable rate mortgages (ARM), which had a 4.0% share of all mortgage applications during the week, rose to 2.74% with 0.38 point compared to 2.73 percent with 0.36 point in the earlier weeks.
It should be noted here that the interest rates quoted here are for 80% loan-to-value mortgages and points which are included in the application fee.
How has increased mortgage rates affected loan applications?
Due to the increase in the mortgage interest rates, the mortgage refinance applications as well as normal mortgage applications got dropped by around 9%. However, it was noticed that the Home Affordable Refinance Program (HARP), which accounted for around 24% of refinancing activity, remained unchanged.
As per the Mortgage Bankers Association and the Market Composite Index which measures all the mortgage application volume, it was noticed that mortgage application volume, which includes both refinancing and home purchase demand, was down by 7.4% on a seasonally adjusted basis.
What does this reflect about the market situation?
As the mortgage applications are fluctuating with the rise and fall of interest rates, it only highlights the fact that the mortgage market is still volatile. The stability that could be seen in the mortgage market prior to the real estate crisis can't be found even after the declaration that the crisis period is over. As the mortgage market is still not stable, the stability in the over all economy also cannot be found.
So, steps should be taken in order to stabilize the mortgage market so that mortgage applications don't fall with the increase in interest rates. One more reason of falling mortgage applications due to rise in interest rate is that the employment situation of the borrowers have not improved much. Unless the employment situation improves and the borrowers have a good economic situation, the mortgage applications won't get stabilized.
Hopefully, with time, the market situation as well as the economic situation of the borrowers will improve and there will be stability in the whole economy.