Despite an uptick in mortgage rates last week, applications spiked to their highest level since March, according to the Mortgage Bankers Association.

MBA’s Market Composite Index, a measure of mortgage loan application volume, jumped 16.7% week over week on a seasonally adjusted basis. Unadjusted, the index was up 69% from the previous week.

The increase was mainly driven by booming refinance activity in the first week of 2021, said Joel Kan, associate vice president of economic and industry forecasting at MBA.

The Refinance Index rose 20% week over week and was 93% higher than the same week last year. The seasonally adjusted Purchase Index climbed 8% week over week, while the unadjusted purchase index skyrocketed 60% week over week and was up by 10% from the same period a year ago.

“The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher. The 30-year fixed mortgage rate climbed two basis points to 2.88% but reversing the trend, the 15-year fixed-rate ticked down to 2.39% – a record low,” Kan said. “Even with the rise in mortgage rates, refinancing did not slow to begin the year, with the index hitting its highest level since last March. Both conventional and government refinance applications increased, with applications for government loans having their strongest week since June 2012.”  

Of total applications, the refinance share of mortgage activity grew from 73.5% to 74.8%. The activity share of adjustable-rate mortgage (ARM) decreased 1.6% and the FHA share, which was down from 10.1% to 9.6% week over week. The VA share of total applications increased from 13.6% to 15.8%, while the USDA share held steady at 0.4%.

“Sustained housing demand continued to support purchase growth, with activity up nearly 10% from a year ago,” Kan said. “The lower average loan balance observed was partly due to a 9.2% increase in FHA applications, which is a positive sign of more lower-income and first-time buyers returning to the market.”  

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.88% from 2.86%, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 2.93% from 2.90%, with points decreasing to 0.32 from 0.33 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.  

The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.39% from 2.40%, with points increasing to 0.31 from 0.29 (including the origination fee) for 80% LTV loans. The effective rate remained unchanged from last week.  

The average contract interest rate for 5/1 ARMs increased to 2.66% from 2.63%, with points decreasing to 0.38 from 0.41 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.