Mortgage applications fall as rates increase

Refinancing index falls 19.6%, biggest drop in almost two months

December 07, 2003|By BLOOMBERG NEWS

U.S. mortgage applications fell last week as higher borrowing costs prompted the biggest drop in refinancing in more than a month, an industry group said.

The Mortgage Bankers Association's index of applications declined 11.7 percent to 685.1. The refinancing index slumped 19.6 percent to 2,100, the largest decrease since a 22.1 percent slide in the week that ended Oct. 10.

The average rate on a 30-year fixed-rate mortgage rose to 6.02 percent last week, according to mortgage giant Freddie Mac. It's now profitable for about 41 percent of homeowners to refinance, compared with 90 percent in mid-June, when rates were the lowest in over 40 years, said Orawin Velz, a senior economist at Fannie Mae, the largest source of mortgage financing.

"You have to have an economic incentive to refinance, and for most people that process is relatively complete," said Thomas Finnegan, president of Huntington Mortgage Group, a unit of Huntington Bancshares Inc.

"The low rates now are enough to sustain what would normally be a seasonal drop-off in sales. But there is no incentive to refinance."

Mortgage rates are less than a percentage point higher than the record low of 5.21 percent in June. That might help explain why applications to purchase homes are staying close to an all-time high.

The purchase index last week fell 3.9 percent to 441.8. In late May, the purchase gauge was at a record 460.5.

The current borrowing costs for a 30-year fixed-rate mortgage put the average monthly payment on a $100,000 loan, including principal and interest, at $600.84, according to Bank- rate.com. That compares with $611.82 a year ago and $549.72 in mid-June.

Huntington's Finnegan said he expects to close on about $6 billion in mortgages this year because of the higher demand in the summer.

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