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Mortgage interest rates soared across the board last week, with the rate on the government’s low-down-payment option increasing to the highest level in 21 years. That hit mortgage demand hard, with total application volume dropping 3.1% last week compared with the previous 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 ($726,200 or less) increased to 7.09% from 6.93%, with points increasing to 0.70 from 0.68 (including the origination fee) for loans with a 20% down payment. The average rate for jumbo loans hit 7.04%.
The rate on FHA loans, which are favored by first-time or lower-income borrowers because they offer low down payments, hit 7.02%, the highest since 2002.
“Treasury yields rates rose last week and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the U.S. government debt rating,” said Joel Kan, MBA’s vice president and deputy chief economist.
Applications for a mortgage to purchase a home dropped 3% for the week and were 27% lower than the same week one year ago. High mortgage rates are not only making it harder to afford a home, they’re keeping current homeowners in place. Today’s homeowners who have mortgages are paying interest rates in the 3% to 4% range and are putting off a move because they don’t want to pay twice that on another home.
Applications to refinance a home loan dropped 4% for the week and were 37% lower than the same week one year ago.
Mortgage rates have held over 7% to start this week, according to a separate survey from Mortgage News Daily. Rates could see a much bigger move Thursday with the release of the monthly inflation data.