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Mortgage Rates Remain Near Record Lows, But Application Volume is Down

Apr 08, 2020 by Matt Frankel, CFP

Mortgage rates held mostly steady last week after a period of relatively sharp up-and-down swings since the COVID-19 pandemic began. However, despite rates remaining near all-time lows, fewer mortgage applications are being submitted.

With that in mind, here's a rundown of the most recent mortgage rates and market activity in the U.S.

Average mortgage rates in the U.S.

According to the Mortgage Bankers Association's newest data, the average mortgage rates for the week ending April 3, 2020, were as follows:

Type of Loan Average Interest Rate Last Week's Average Rate Average Points (Including Origination Fee)
30-year fixed-rate conforming 3.49% 3.47% 0.28
30-year fixed-rate jumbo 3.87% 3.84% 0.26
30-year FHA 3.54% 3.57% 0.19
15-year fixed-rate conforming 3.04% 3.05% 0.25
5/1 adjustable-rate mortgage (ARM) 3.39% 3.35% (0.02)

Data source: Mortgage Bankers Association. Parentheses indicate negative numbers.

A few notes to help understand these averages:

  • A conforming mortgage is one that meets Fannie Mae and Freddie Mac's lending standards, particularly when it comes to size ($510,400 or less). Jumbo mortgages are those in excess of this limit.
  • Points are expressed as a percentage of the loan amount. In other words, 0.25 points on a $200,000 mortgage would translate into a $500 origination cost.
  • All averages assume 80% loan-to-value ratios, or LTVs. In other words, these are based on the borrower putting a 20% down payment. With a lower down payment, it's common to see slightly higher interest rates and origination charges.
  • These are the averages for borrowers of all credit scores. If your FICO score is significantly higher than average (about 700), you can expect a mortgage rate that's somewhat below average. In contrast, a borrower with a lower FICO score can expect a higher-than-average interest rate.

People are refinancing, but they aren't buying homes

Overall, mortgage application volume declined by 18% from the previous week, including both purchases and refinance applications. However, there was a big difference between the two.

Purchase applications declined by 12% from the previous week but were 33% lower than the same week in 2019. On the other hand, refinancing applications dropped by 19% from the week before but are still 144% higher than they were at this time last year.

It certainly makes sense that purchase mortgages are down. The real estate market is minimally active in most parts of the U.S., especially in places hit hard by the COVID-19 pandemic. In fact, purchase applications declined by more than 50% from a year ago in both New York and Washington states, two coronavirus hotspots.

It also makes sense that refinancing is up. After all, you can generally refinance your mortgage without ever leaving your home, and the mortgage rates in the chart above are some of the lowest in history. Since many Americans have tons of newfound time on their hands to shop around for the best refinancing rate, and with many concerned about saving money on expenses, it's not at all surprising that U.S. homeowners are taking advantage.

The Millionacres bottom line

As a final thought, as is common during recessions and other uncertain times, lenders have started to tighten their underwriting standards, especially when it comes to refinancing as the industry struggles to keep up with the high volume of applications. This makes your credit score and ability to document steady income extremely important, so keep this in mind if you're planning to apply.

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