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Low mortgage rates spur 20 percent spike in refinance applications

Nothing lasts forever, and one analyst says this might be nothing more than a normal correction

Photo (c) Bill Oxford - Getty Images
With mortgage interest rates hitting a 30-year low -- falling to 2.86 percent -- many consumers are looking to secure a lower rate for themselves by refinancing. This has led to a 20 percent spike in refinancing applications in January.

According to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS), low interest rates have also leveraged the number of applications to purchase a home, up 10 percent from a year ago. 

Piqued by hope for more stimulus checks

Many consumers are hoping that the change in administrations on Capitol Hill might bring them some additional funds that could help offset the cost of getting a better mortgage deal. 

"The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher,” claimed Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. 

Kan went on to note that many consumers are ditching the idea of once-loved adjustable-rate mortgages (ARM) due to the possibility of being able to lock in a good rate. The ARM share of activity has pretty much bottomed out, decreasing to 1.6 percent of total applications. 

Make sure you understand interest rates

While a fat stimulus check sounds like a great way to help buy or refinance a home, one analyst says consumers need to understand how the whole interest game plays out before they get too far ahead of themselves. 

“Covid-relief stimulus may do great things for people in the short term and for the economy in the longer term, but it does bad things for interest rates (assuming you like low rates, that is),” commented Mortgage News Daily’s Matthew Graham. “Reason being: the government issues/creates/sells U.S. Treasuries to finance the additional spending. More Treasuries issued = higher yields/rates, all other things being equal, and Treasuries correlate significantly with mortgage rates.”

Graham went on to say that the recent low rates were likely a normal correction to the short-term oversold momentum. “That said, there are logical reasons for rates to continue higher in the longer term. As such, there's no guarantee about how much additional improvement we might see this week,” he said.

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