By Aldo Svaldi
Denver Post Staff Writer
9/7/2006

Mortgage activity picked up steam last week as more consumers took advantage of falling rates.

According to a report issued Wednesday by the Mortgage Bankers Association, applications for new mortgages jumped 3.7 percent in the week ended Sept. 1 from the previous week, while refinancing activity decreased 0.9 percent.

"The retreat in fixed rates in the last two months has happened under the noses of a lot of homeowners and borrowers," said Greg McBride, a senior financial analyst with Bankrate.com. "It comes at a very opportune time."

Recent reports show a housing market that is slowing rapidly after a series of interest-rate hikes from the Federal Reserve that started in the summer of 2004.

The Fed took a pause from raising rates in July, and bond markets responded by driving yields lower on bonds. Fixed-rate mortgages, linked to bond rates, also have moved lower.

After brushing close to 7 percent in July, fixed-rate mortgages have fallen to below 6.5 percent.

Fixed mortgages are now significantly lower than the rates borrowers with adjustable mortgages are facing as their loans readjust.

For example, a homebuyer who borrowed $200,000 in September 2003 at a 4.25 percent adjustable rate lasting three years now faces an adjustment to around 7.6 percent - translating into payments that are $400 higher per month, McBride estimates.

That same borrower's increase would be limited to $213 a month more if he or she took a 30-year mortgage at the average rate, although additional costs would be incurred by refinancing.

Borrowers seem to be moving away from adjustable-rate mortgages. They represented 26.2 percent of total applications, the lowest share since October 2003.