Demand For Refinance Loans Is Rising, Even As Mortgage Rates Increase

Recovering from record lows earlier this month, mortgage rates started climbing steadily, but it is not enough to faze borrowers, a new report from the Mortgage Bankers Association stated Wednesday.

While overall mortgage applications slipped 0.6% in the week ending Oct. 16, demand for refinancing loans grew by 0.2%, the report said. Refinance applications made up 66.1% of total mortgage applications in the week, up from 65.6% in the week before.

Refinance loan requests are up a whopping 74% compared to the same week in 2019.

According to MBA’s latest weekly survey, mortgage rates have reached their highest since late September. Rates on a 30-year loan rose to 3.02%, up from 3% last week. Even as the rates have started going up, homeowners are seeing this time as a low-rate period, trying to land the cheapest mortgage rates before they go up any further.

While refinance requests are touching highs, new mortgages or "purchase loans" fell by 2% from the previous week. But they are 26% higher than the same time last year, according to MBA.

Low interest rates may not stay for a long time as a new refinance fee comes into effect this December. Government-backed home mortgage companies need this new fee to cushion their losses due to the COVID-19 pandemic.

The real estate market in the U.S. has seen booming prices as demand for houses has far exceeded supply in recent months. Prospective buyers have to wait for prices to stabilize and financing to become easier. Banks have increased their requirements to lend, to slow down the rising demand. A recent report by the National Association of Home Builders (NAHB) suggests for every $1,000 increase in home price, 150,000 buyers are priced out of a home purchase.

Personal finance author Suze Orman suggested in her blog that refinancing your loans to capitalize on lower rates is a "huge mistake" and only refinance loans with a shorter term must be taken on.