What Is the MBA Refinance Index?

The MBA Refinance Index is a weekly measurement put together by the Mortgage Bankers Association, a national real estate finance industry association. The index helps to predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted.

Key Takeaways

  • The MBA Refinance Index is a weekly measurement tool issued by the Mortgage Bankers Association.
  • The index helps to predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted.
  • Homebuilders pay attention to the MBA Refinance Index because it is the leading indicator of home sales, helping to determine the demand for homes.
  • The MBA Refinance Index is closely followed by investors to gauge prepayment activity, which if increased, adversely impacts some investors, such as holders of mortgage-backed securities (MBSs).
  • Economists are also interested in the MBS Refinance Index, as depending on the interest rate environment when homeowners are refinancing will help gauge how other areas of the economy are affected.
  • The information to create the MBA Refinance Index, along with other mortgage indexes by the MBA, is captured through the MBA's Weekly Application Survey.

Understanding the MBA Refinance Index

The MBA Refinance Index measures the number of refinance applications submitted and is reported every Wednesday. However, it does not measure the number of refinance loans that are actually closed. The MBA Refinance Index reports the new weekly index number and the percentage change from the previous week’s number, as well as the index’s four-week moving average.

The MBA Refinance Index is a tool to predict mortgage activity. Homebuilders pay attention to the MBA Refinance Index because it is the leading indicator of home sales. Mortgage investors also take notice of the index as it is a leading indicator of mortgage prepayment activity.

Economists follow the refinance index because an increase in refinancing when interest rates are decreasing can give consumers more money to spend in other areas, which can then benefit the overall economy. Various factors impact the index, but most importantly mortgage interest rates, 10-year bond rates, and home prices.

When the Refinance Index indicates an increase in refinancing activity, it can be bad news for investors of mortgage-backed securities (MBS). Homeowners who refinance are prepaying their original mortgages. Mortgage investors then lose the mortgages that are at a higher interest rate and see them replaced by mortgages that incur a lower interest payment.

The Mortgage Bankers Association and the MBA Purchase Index

The MBA also releases the MBA Purchase Index, which measures home loan applications for buying rather than for refinancing. Unlike the purchase index, the refinance index is not seasonally adjusted because seasonality does not affect refinance activity the way it affects purchase activity. The MBA Refinance Index, along with the MBA Purchase Index, is derived from the MBA's Weekly Application Survey, which has been conducted since 1990 by the MBA.

The MBA's Weekly Application Survey is used to create 15 different indexes. In addition to the Refinance Index and the Purchase Index, the survey is used to create the Market Index, the Conventional Index, the Government Index, the FRM Index, and the ARM Index, to name but a few. All of these Indexes provide a different focus on the mortgage market.

The Weekly Application Survey captures approximately 75% of all "retail and consumer-direct channel application volume," meaning that it captures 75% of all mortgage applications. The survey covers a wide variety of mortgage types and mortgage lenders to gain a comprehensive view of the U.S. mortgage market.

The national association representing the real estate finance industry, the Mortgage Bankers Association (MBA), publishes all of the above indexes. The organization is headquartered in Washington and works to help its members conduct the business of single and multifamily mortgage finance by promoting fair and ethical lending practices, fostering professional excellence through educational programs and publications, providing news and information, and holding conferences.

Not to be confused with a mortgage broker, a mortgage banker is an institution or individual who closes and funds mortgage loans in their own name. A mortgage broker facilitates a mortgage transaction between a mortgage banker and a borrower for a fee. The MBA represents mortgage bankers.

What Is a Refinance Index?

A refinance index specifically refers to the Mortgage Bankers Association (MBA) Refinance Index, which provides weekly information on the U.S. mortgage market's refinancing and prepayment activity. It is one of 15 indexes provided by the MBA.

When Should You Not Refinance Your Home?

There are a variety of reasons not to refinance your home, the most important one being the cost and time. If the time to recoup the costs incurred during refinancing is longer than you plan on owning your home, then it may not be worth it to refinance. This directly relates to the new interest rate you'll receive on the refinance. If the monthly savings are not significantly better, it may not be worth the cost.

What Is a Mortgage Index?

A mortgage index is the benchmark interest rate used to calculate the interest rate on an adjustable-rate mortgage (ARM). An ARM's interest rate is a component of an index value plus an ARM margin.