U.S. Home Loan Interest Rate Update

(Reuters) – The interest rate for the most popular U.S. home loan decreased to 6.13% last week, marking the lowest rate in nearly two years. This has spurred a significant increase in refinancing activity, according to data from the Mortgage Bankers Association released on Wednesday.

The average contract rate on a 30-year fixed-rate mortgage fell by 2 basis points in the week ending September 20. This change is considerably milder than the 0.50 percentage point cut in the federal policy rate enacted by the Federal Reserve last week.

Mortgage rates had been on a downward trend leading up to the Fed's rate cut, decreasing over 0.75 percentage points since July and more than 1.75 percentage points since the peak in October 2023.

As mortgage rates have declined, applications to refinance existing home loans surged, allowing homeowners to lower their monthly payments. Currently, refinancing makes up over 57% of all mortgage applications, surpassing the historic median of 48%.