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Interest Rate Updates for Home Financing and Mortgage Refinance Rates
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August 2009
« Jul   Sep »

Rates and Mortgage Loan Applications Rise

Usually when rates rise, mortgage loan volumes drop, but this week, loan application rose even after the spike in mortgage rates. MBA reported that Mortgage interest rates on thirty-year fixed rate home loans rose slightly to 5.24% last week, from 5.15% in the previous week, but still below 5.38% of two weeks ago, according to the Mortgage Bankers Association’s weekly survey of mortgage applications. The mortgage refinance index rose by 12.7% last week from the previous week, the third gain in four weeks, and total mortgage application volume is up 34% from the same time last year on an un-adjusted basis. While low by historical standards, rates haven’t dropped below the magic 5% threshold that they crossed as recently as May.

The index that measures new home purchases rose by 1% on solid demand for government loans, the fourth straight weekly gain. Refinance activity accounted for 56.5% of all home loan applications. Meanwhile, more borrowers appear to be turning to adjustable-rate mortgage loans. ARMs accounted for 6.5% of all mortgage originations last week, up from lows of 3% when mortgage rates dropped below 5% in April and May.

Treasurys Drop

Treasury prices turned lower on Wednesday, pushing long-term yields up for the first day in three, ahead of an auction of a record amount of 10-year notes and the conclusion of the Federal Reserve’s two-day policy meeting.  Yields on the current 10-year note rose 2 basis points to 3.69%. A basis point is 0.01%. Mortgage interest rates climbed last week and loan application volumes declined as a result.

Yields on 2-year notes, more sensitive to expectations for interest rates, remained lower by 2 basis points to 1.15%.  Bids on the $23 billion 10-year debt are due at 1 p.m. Eastern time. The auction is the second of three this week in the Treasury Department’s quarterly refunding.   “Caution [is] recommended with $23 billion 10-year notes one hour before the FOMC decision and $15 billion bonds on tap” in 30-year bonds on Thursday, said John Spinello, Treasury strategist at primary dealer Jefferies & Co., one of the 18 primary dealers that trade with the Fed and are required to bid at government auctions.  The U.S. will sell more than 2 trillion in debt in the fiscal year ending in September to finance a bevy of government stimulus programs, and central-bank activities to ease strains in financial markets and cushion the economy’s slowdown.