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Here's Why Mortgage Borrowing Just Cooled Off, Despite Low Rates

Here's Why Mortgage Borrowing Just Cooled Off, Despite Low Rates
Here's Why Mortgage Borrowing Just Cooled Off, Despite Low Rates

Borrowers may be overreacting — and losing out — as mortgage rates pause after falling steadily for weeks.

You're still likely to find dramatically low rates where you live, but homebuyers and homeowners appear to be fixating on last week's slight increase in the national average for a 30-year fixed-rate mortgage. Applications for home loans have slowed, a lenders trade group says.

Even so, demand for mortgages remains elevated and is much stronger than it was a year ago. If you spot a low rate, don't snooze and lose — but lock that rate so it won't get out of your grasp.

Mortgage refinances dip

Millennial couple studying mortgage information for new house before signing.
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Homeowners held back on refinancing last week.

Overall mortgage applications fell 6.4% during the week ending Feb. 14, the Mortgage Bankers Association reported Wednesday.

Requests for refinance loans fell 8%, after hitting a seven-year high the previous week. Even so, it was the third biggest week for refis so far in 2020. And demand was up 165% compared to the same week in 2019.

In other words, lenders were dealing with more than two and a half times the number of refinance applications as they were a year earlier.

Homeowners who refinance can slash their monthly payments and their total interest costs, even if their current mortgages were taken out as recently as 2018.

The share of mortgage applications for refinance loans slipped last week to 63.2%, from 65.5% the previous week.

Shortage of affordable homes keeps homebuyers from borrowing

A young woman is looking at a little house with a blue door
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Would-be buyers are having trouble finding homes the can afford.

Last week also saw a drop in demand for the mortgages sought by homebuyers.

"Purchase applications fell 3% last week, as there continues to be some pullback after a strong January," says Joel Kan, the vice president of forecasting for the Mortgage Bankers Association.

"Activity was still 10% higher than a year ago, but too few options — especially at the lower portion of the market — are slowing some would-be buyers," Kan says.

Builders are doing what they can to increase the supply of homes. The Commerce Department said Wednesday that new home construction in January was up 21.4% compared to a year earlier, and building permits surged to the highest level since March 2007.

Coronavirus is likely to keep mortgage rates low

Ill man in glasses wearing a face mask to protect against coronavirus
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The coronavirus scare is holding down mortgage rates.

Mortgage rates inched up last week after declining for three straight weeks.

The average for a 30-year fixed-rate mortgage went from 3.45% to 3.47% — still close to a three-year low and not too far off the all-time low of 3.31% seen in nearly 50 years of weekly surveys from mortgage giant Freddie Mac.

One year ago, the benchmark mortgage rate was nearly a full point higher, at an average 4.37%.

Mortgage rates have been sinking while investors pour money into Treasury bonds as a safe place for their money amid all of the uncertainty over the coronavirus. As demand for Treasuries rises, their yields (interest rates) fall, and mortgage rates tend to move along the same track.

Rates on 15-year fixed-rate mortgages were unchanged last week, at an average 2.97%. Those loans are a popular refinance option.

And the average initial rate on 5/1 adjustable-rate mortgages fell to 3.28%, from 3.32% a week earlier. "ARMs" are fixed for five years, and after that the rates can adjust up or down each year.