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The mortgage industry is reporting record refinancing activity with interest rates near their lowest point in 33 years.
Mortgage loan activity increased 18.1percent on a seasonally adjusted basis nationally last week, according to the weekly Mortgage Bankers Association of America survey released Wednesday.
Refinancing activity represented 76.5percent of the mortgage activity, increasing from 73.8percent the previous week. This is the highest amount of refinance applications since the association started the survey in 1990 and broke the record set the previous week. "Uneasiness in the economy and the possible perception by consumers that interest rates have bottomed may have spurred many homeowners who had not refinanced to do so," association economist Phil Colling said.
East Valley lenders are staying busy as refinance applications pour in. Loan officers at Sun American Mortgage in Tempe are busier than ever. Assistant branch manager Aileen Marcus said she and her partner will process more loans this month than in any other month.
Many borrowers are going from 30- to 15-year loans, Marcus said. "The 15-rate loan is low enough that it's not changing their payment much from a 30-year loan," she said.
A 15-year fixed mortgage is a common loan for refinancing because borrowers can pay off their loans quicker with less interest, without increasing their monthly payment significantly.
A 15-year loan reduces the amount of interest by almost half of what a 30-year loan requires , Marcus said.
Axis Mortgage & Investments in Scottsdale has seen a 25 percent to 30percent increase in loan activity lately.
While rates are low and may go lower, loan officers are discouraging people from waiting any longer.
"The market is still very unstable right now and it's up and down," Axis senior loan officer Anne Clark said. "If they want to refinance, they need to make a decision and lock the loan."
Clark said they are anticipating a huge refinance boom because of low interest rates. Both the increase in refinance activity and overall seasonally adjusted increase were MBA records. Mortgage lending is expected to top $ 1.84 trillion this year, which breaks the 1998 record of $ 1.50 trillion. Refinancing will likely account for 52percent, Colling said.
People aren't spending much these days, which means they are probably using their mortgage savings to pay down debt accumulated in the last few years, Colling said.
The increase in activity is giving a boost to the economy, said Greg McBride, financial analyst. Attractive interest rates have helped some homeowners to purchase a home while others lowered their monthly payment. MBA reported the national average interest rate for 30-year fixed rate mortgages was 6.61percent last week, increasing from 6.49percent a week earlier. The national average interest rate for 15-year fixed rate mortgages was 6.02percent, increasing from 5.92percent the previous week.
McBride reported similar national interest rates with 6.64percent on a 30-year fixed mortgage and 6.1percent on a 15-year mortgage. This translates to a monthly mortgage payment of $ 961.95 on a $ 150,000 loan for 30 years. On a 15-year loan the payment would be $ 1273.90, McBride said. Adjustable Rate Mortgage activity increased to 9.6percent last week from 9.1percent a week earlier . The national average contract rate for one-year ARMs was 5.21percent, decreasing from 5.35percent a week earlier.
Although interest rates crept up slightly from the record low set the week of Oct. 5, rates are still low and are expected to remain low, Colling said.
He attributes the increase to principles of supply and demand. There is a demand for mortgage money, which affects the supply, he said.
Origination fees have dropped considerably, which has led some borrowers who refinanced a few months ago to refinance again, economist Peter Glass said.
Glass anticipates interest rates will remain low until spring when the Federal Reserve is expected to begin hiking the benchmark rate, which affects other rates. The Fed cut the benchmark rate nine times this year to stimulate the economy. McBride said low mortgage rates are more an effect of uncertain economic times than a cause. An increased demand for bonds has driven long-term bond prices up and yields down, which lowers mortgage rates.
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