Mortgage applications for government-backed Federal Housing Administration loans spiked last week, as the government moved to lower its annual insurance premiums by half a percentage point. FHA offers mortgages with down payments as low as 3.5 percent.

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FHA refinance applications last week jumped 76.5 percent alone, the Mortgage Bankers Association reports. Also, despite a decrease in purchase applications seen in the rest of the mortgage market, FHA purchase applications also were up 12.4 percent last week.

Indeed, many of the gains in mortgage application activity this past week came from FHA volume, the Mortgage Bankers Association reports in its weekly mortgage market survey.

“Clearly the drop in insurance premiums, while a bit less than a $100 monthly savings for the average borrower, is bringing more people back to the mortgage table, be it to refinance or buy a home,” reports. “The added incentive of falling mortgage interest rates is not hurting either.”

The 30-year fixed-rate mortgage fell last week to 3.79 percent, the lowest average since May 2013, MBA reports. The average interest rate for FHA loans dropped to 3.69 percent, from 3.71 percent one week earlier.

Overall, mortgage application activity – reflecting applications for home purchases and refinancings – rose 1.3 percent on a seasonally adjusted basis compared to one week earlier, MBA reports. Refinancings continued to rise, increasing another 3 percent week to week. But applications for home purchases decreased 2 percent. Purchase applications remain 3 percent higher than year ago levels.

Source: “Demand for Government-Backed FHA Loans Spikes,” (Feb. 4, 2015)