Mortgage Activity Up, Rates Flat

Despite the Veteran's Day holiday, applications for mortgage loans rose by 4.3% last week, the Mortgage Bankers Association reported Wednesday.

The market composite index of mortgage loan applications -- a measure of the volume of loan applications -- was 758.3, up from 727.3 one week earlier. Purchase loan applications were down by 0.6% on a seasonally adjusted basis from the week before, while refinance applications increased by 10.6% during the same period.

The interest rate on an average contract for a 30-year, fixed-rate mortgage increased to 5.7% from 5.69% a week earlier, with points decreasing to 1.27 from 1.36 for 80% loan-to-value mortgages.

For 15-year mortgages, the average contract rate remained at 5.08%, with points decreasing from 1.33 to 1.27, for 80% loan-to-value mortgages. The average contract interest rate for one-year adjustable-rate mortgages decreased to 3.89% from 4.03%, with points dropping from 1.05 to .97 on 80% loan-to-value loans.

Overall market activity was higher than it was a year ago.

But Bert Morrison, who heads Quality Funding Group, a mortgage brokerage in Rancho Bernardo, Ca., said business is down significantly from last year when "everyone was refinancing three times a year." Now, he said, with interest rates hovering above their lows of recent months, "they don't need to do it."

Many homeowners, however, still want to lower their monthly mortgage payments, and are increasingly looking to loans called "pay option" adjustable rate mortgages, says Morrison. "Right now, this is the hot program," he said.

These loans offer borrowers the option of making any one of three or four different types of payments during the life of the loan: a minimum payment of 1% (which is less than market rate), an interest-only payment or a payment of whatever amount they want.