Borrowers head back to riskier mortgages, looking for any potential savings

Mortgage demand generally weakened again last week, even as interest rates fell slightly. However, for those still in the market, they are increasingly looking at adjustable rate loans to get the lowest interest rate possible.

Total mortgage application volume fell 4.7% last week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances $806,500 or less dropped from 6.46% to 6.43%, and the score for loans with 20% down payment dropped from 0.61 to 0.60. The rate was only 7 basis points lower the same week a year ago.

Applications to refinance a home loan, which rose sharply in mid-September and fell again two weeks ago, fell 8% last week. Refinance demand is still 18% higher than the same week a year ago.

“Mortgage rates on fixed-rate loans were little changed last week, with refinancing application activity generally down, except for a modest increase for FHA refinance applications,” said MBA SVP and chief economist Mike Fratantoni. he said.

Applications to buy a mortgage home fell 1% for the week and were 14% higher year-on-year. Purchasing demand hasn’t moved much in the past few months as potential homeowners struggle with high prices and growing uncertainty in the economy. While the supply of homes for sale is higher than a year ago, more sellers are listing their properties or choosing to wait before listing.

For those buying or refinancing, slightly riskier adjustable-rate mortgages are gaining popularity because they offer lower interest rates. Rate terms on arms can be fixed for up to 10 years, but loans are considered riskier because they can adjust higher depending on market conditions once the fixed period ends.

“ARM share rose to 9.5 percent last week from 8.4 percent the week before. Our survey shows 5/1 arm rates are nearly a percentage point below 30-year fixed rates, and that gap is leading more purchase and refinance applicants to consider guns,” Fratantoni said. he said.

Mortgage rates didn’t do much to start this week, as the lack of government data on the economy due to the shutdown kept bond markets relatively calm.