Mortgage rates fall as demand for loans rises

Mortgage rates fell last week as growing demand for home loans continued to strain lenders’ capacity to process them.

The average for a 30-year fixed-rate mortgage reached 2.88 percent, down from 2.90 percent the week before, with an average 0.8 point, according to a Freddie Mac report released Thursday. (A point is a fee buyers pay, in addition to the interest rate, that equals 1 percent of the loan.) The average rate is substantially down from what it was a year ago — 3.65 percent.

The 15-year fixed-rate average reached 2.36 percent, down from 2.40 percent, with an average 0.7 point. The five-year adjustable-rate average at 2.90 percent, with an average 0.2 point, was unchanged from the previous week. The 15-year rate was 3.14 percent and the five-year was 3.38 percent a year ago.

“Mortgage rates are in a holding pattern because we have lots of big things looming and investors are waiting to see what happens,” said Danielle Hale, chief economist with Realtor. com. “Obviously, they’re waiting on the election results, but also on the next stimulus plan, which seems to start and stall. I expect mortgage rates to stay stable and not go up or down much until we get some of this big news.”

Freddie Mac’s Primary Mortgage Market Survey, from which the averages are derived, is confined to rates on conventional home loans for borrowers who make a 20 percent down payment and have excellent credit. Rates are likely to be higher for borrowers who make a smaller down payment and who have a lower credit score.

The yield on 10-year Treasury notes, Federal Reserve policies, the stock market and other economic indicators as well as the volume of mortgage applications also all play a role in determining rates individual borrowers are offered.

Pending home sales, which are homes that are under contract but have not yet gone to closing, rose by 24.2 percent in August compared to August 2019, according to the National Association of Realtors. They were also up 8.8 percent compared to July. The buyers of these homes are in the process of finalizing their mortgage loans, which contributes to high loan demand.

At the same time, mortgage applications for the week dropped — not so much from declining demand but from lenders trying to deal with an overwhelming interest from borrowers by curtailing the number of applications they will accept.

Lenders who “have been able to increase business capacity continue to offer more competitive rates than others who have been forced to slow volume with higher, less competitive rate offerings to consumers,” said Paul Buege, president and COO of Inlanta Mortgage in Pewaukee, Wis.