Refinances see mini hot streak thanks to lower rates

Borrowers responded to a pullback in interest rates, leading to another surge for refinance activity last week. 

The 30-year conforming rate eased back 2 basis points to an average of 6.95% from 6.97% for the seven days ending Feb 7, according to the Mortgage Bankers Association's weekly applications survey. 

Similarly, the average 30-year jumbo rate fell back under the 7% threshold to finish at 6.96% from 7.01% the previous week.

"Mortgage rates moved slightly lower last week, which led to the pace of refinance applications reaching its strongest week since October 2024," said Joel Kan, MBA's vice president and deputy chief economist. 

"The average loan size for refinance borrowers increased, as these borrowers tend to be more responsive for a given change in rates," he added.

Evidence showed up in the MBA's Refinance Index, which jumped 9.6% on a seasonally adjusted basis, continuing its latest hot run after a 12.2% upturn a week earlier. Refinances offset a slowdown in buying activity, with the Purchase Index falling 2.3% week over week on a seasonally adjusted basis. 

Meanwhile, the share of refinance applications relative to total volume also expanded to 40.2%, up from 39% in the previous survey. The average refi loan size jumped to $300,500 from $288,400. 

Elevated refinance activity also lifted the MBA's full Market Composite Index up for the second week in a row, rising 2.3% on a seasonally adjusted basis. Volumes also came in higher by 13.4% from the same week in 2024. The trade group's index tracks rates and market activity based on surveys of its members. 

The latest data adds weight to recent Redfin analysis that found a pipeline of refinance candidates, many of whom are ready to jump in to take advantage of a downturn in rates. The current two-week run mirrors trends in periods last summer when borrowers returned to the table once interest rates maintained a downward trajectory for stretches of weeks.

On the purchase side, the average loan size on applications increased to its highest level since March 2022, coming in at $456,100 despite subdued volumes. Contributing to loan-size growth were fewer borrowers using Federal Housing Administration-sponsored loans, Kan said, as consumers continue to express concerns about home prices and declining affordability.   

Government-backed loans nabbed a larger share of volume last week, particularly from Department of Veterans Affairs borrowers, who applied for more of both purchases and refinances. The VA-backed slice grew to 14.6% from 13.3%, while FHA-sponsored applications inched down to a 16% share of activity compared to 16.2% a week earlier. U.S. Department of Agriculture lending programs garnered 0.5%, the same as in the previous survey. 

Adjustable-rate mortgages, which tend to see greater interest when rates are elevated, accounted for 6% of all applications compared to 5.7% seven days earlier. The average rate of the 5/1 ARM, which begins with a fixed 60-month term, increased to 6.2% from 6.07% a week earlier.