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Mortgage Applications Increase as Homeowners Respond to Drop in Rates

By Christy Bieber - Dec 17, 2020 at 1:05PM

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Homeowners and buyers are taking advantage of unprecedented opportunities to secure affordable loans.

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Mortgage rates recently hit yet another record low, and homeowners and buyers have taken notice. As data from the Mortgage Bankers Association reveals, the number of refinance applications rose during the week ending Dec. 11, as did the number of applications for mortgages to purchase homes. 

That means more Americans are taking advantage of the opportunity to secure a home loan at the lowest rates in more than 50 years -- and to lower their bills over the long run. And the good news is that those who have yet to act still have an opportunity to obtain an extremely affordable home loan. 

Mortgage loan applications up as rates fall

For the week ending Dec. 11, the market composite index was up 1.1% from the prior week on a seasonally adjusted basis. This index measures the volume of mortgage loan applications. 

Last week's increase in the number of mortgage applicants was driven by more people refinancing as well as more first-time purchase loan applicants.There was a 1% increase in the refinance index and a 2% increase in the purchase index compared to the prior week, both on a seasonally adjusted basis. 

While there was a larger increase in the number of future homeowners applying for new loans than in current homeowners refinancing, refinancing remains the driving force behind the huge overall increase in mortgage demand this year.

In fact, the refinance index was a whopping 105% higher last week compared to the same week in 2019, while the purchase index was just 26% higher compared to 2019. Refinance loans now account for 72.27% of all mortgage loan applications, up from 72% the prior week. 

There is good reason. Current homeowners are in a better position to take advantage of today's extremely low mortgage rates, since they don't have to purchase a new home to do so. Current homeowners may reduce their mortgage payments by hundreds of dollars simply by completing the paperwork to obtain a new loan at a lower rate (assuming they qualify based on credit and income). 

Those who don't own homes may want to buy soon to score an affordable mortgage at an unprecedented low rate. But they may face some difficulty -- home prices have risen rapidly, and the number of available properties has hit a 38-year low.

It's worth noting that those hoping to refinance may find doing so less attractive if lenders raise rates in response to a new fee imposed by Fannie Mae and Freddie Mac, two government-sponsored entities that purchase mortgages on the secondary market. But not all refinance loans are affected by this fee and, because rates are so low, it may still make financial sense for current homeowners to secure a new loan even with the fee. 

And the good news is that the Federal Reserve has announced it will keep the benchmark interest rate low (that's the rate at which banks borrow from each other) and that it will continue to purchase mortgage-backed securities and bonds. This means mortgage rates are likely to remain low for a while, and the opportunity to secure an affordable home loan should persist into 2021.

If you're not among the many Americans who have refinanced a loan or secured a mortgage to purchase a home, think about whether the time is right. Of course, you need to be in a financial position to buy a home or qualify for a refinance loan at a competitive rate. But if you are, there may never be a better chance to join the growing number of people applying for the cheapest mortgage loans in years.

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