Mortgage rates drop to the lowest level in over a year, pushing refinancing 111% higher annually

Mortgage interest rates dropped for the fourth straight week last week, spurring both current homeowners and potential homebuyers to call their lenders. Total mortgage application volume increased 7.1% 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, $806,500 or less, decreased to 6.30% from 6.37%, with points falling to 0.58 from 0.59, including the origination fee, for loans with a 20% down payment. That is the lowest level since September 2024.

Refinance demand, which is most sensitive to interest rate changes, jumped 9% for the week and was 111% higher than the same week one year ago. Last year at this time, the average rate on the 30-year fixed was 43 basis points higher.

“This recent decline in rates spurred the second consecutive week of increased refinance activity, driven mainly by conventional refinance applications,” said Joel Kan, vice president and deputy chief economist at the MBA, in a release. “The ARM [adjustable-rate mortgage] share of applications, which had been trending higher, dipped below 10 percent last week, as lower rates prompted more borrowers to choose fixed rate loans.”

Kan also noted that the average loan size of a refinance application remained elevated at $393,900, as borrowers with larger loans can see more savings on a refinance.

Applications for a mortgage to purchase a home rose 5% for the week and were 20% higher than the same week one year ago. Homebuyers are still facing high prices and increasing uncertainty on the economy.

“Purchase applications increased compared to a holiday-shortened week across most loan types. However, USDA applications fell more than 26 percent, impacted by the ongoing government shutdown,” Kan added.

Mortgage rates dropped even more to start this week, according to a separate survey from Mortgage News Daily. The markets, however, with very little government data to go on due to the shutdown, are focused even more intently than usual on Wednesday’s announcement and news conference from the Federal Reserve on interest rates.

“We already know the Fed will be cutting rates, and that rate cut has no bearing on what happens to mortgage rates going forward,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “Rather, it would be the tone of the Fed’s press conference, or the nature of any changes in the Fed’s bond buying policies (something that might be included in [the] statement).”