December 12, 2008 - Mortgage Rates

The average interest on a 30-year, fixed-rate mortgage dropped to 5.47 percent this week -- its lowest point in more than four years, according to a Freddie Mac survey.

But many lenders say the rates have dropped even further since Freddie Mac polled lenders on Monday, Tuesday and Wednesday.

The mortgage research firm HSH Associates said yesterday's average rate was 5.33 percent. The trade publication Inside Mortgage Finance said it was 5.09 percent based on its polling of lenders.

"I locked a person in [yesterday] at 4 7/8 percent on a 30-year fixed loan," said Steve Calem, vice president of American Bank in Rockville. "The rates are still volatile in any given day, but they're bouncing up and down from 5.25 to 5.5 percent."

Many firms regularly track interest rates and come up with slightly different numbers because they survey different sets of lenders at different times of the day or week.

The dip reflected in this week's surveys reflect in part the lingering effects of the Federal Reserve's announcement late last month that it would buy a sizeable chunk of mortgage-backed securities.

Immediately after the initiative was unveiled, interest rates dropped well below the 6 percent mark, fueling a wave of mortgage applications, mostly from people looking to refinance. But it was unclear if the rates would stay down as long as they have given the wild swings of the last few months.

Freddie Mac said this week's 5.47 percent average is down from 5.53 percent last week and 6.11 percent last year at this time. The survey captures rates on loans that meet the guidelines of Fannie Mae and Freddie Mac, which together accounted for 57 percent of all mortgages made in the third quarter, according to Inside Mortgage Finance.

Frank E. Nothaft, Freddie Mac's chief economist, said the recession and recently released high unemployment numbers also played a role in driving down rates.

With the economy in turmoil, investors are clamoring for government bonds, a traditional safe haven during market turbulence. When demand for long-term bonds is high, the yield falls on long-term investments. That ultimately translates into lower rates on mortgages, which are long-term investments.

"Bond yields fell slightly this week, allowing fixed-rate mortgage rates room to ease back a little further," Nothaft said.

No matter what the rates are, borrowers should keep in mind that they probably will not qualify for the lowest offers if they lack stellar credit. Those who want to refinance also must have equity in their homes, a challenge for many because home prices are down in most parts of the country.

Original Story - Washington Post

Update - December 26 - Home-Mortgage Rate Hits Fresh Low, 5.14%

Fixed-rate home mortgage rates fell again this week, with the 30-year fixed-rate mortgage setting another record low, at least since Freddie Mac began doing its weekly survey in the early 1970s.

The 30-year averaged 5.14% for the week ended Dec. 24, down from last week's 5.19% average, according to the Freddie Mac survey released Wednesday. It was more than a full percentage point below its 6.17% average a year ago, and hasn't been lower since Freddie started doing its rate survey in 1971.

Fifteen-year fixed-rate mortgages averaged 4.91% this week, down from 4.92% last week and 5.79% a year ago. The mortgage hasn't been lower since April 1, 2004, when it averaged 4.84%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.49% this week, down from 5.6% last week and 5.9% a year ago. One-year Treasury-indexed ARMs averaged 4.95%, up slightly from 4.94% last week yet still down from 5.53% a year ago.

"Interest rates on 30-year fixed-rate mortgages eased for the eighth straight week" and set a record low since Freddie Mac's survey began in 1971, said Frank Nothaft, Freddie Mac chief economist, in a statement.

"Real GDP growth fell 0.5% in the third quarter of the year, pulled down by the largest drop in consumer spending since the second quarter of 1980. The market consensus calls for an even larger decline in the last three months of the year," he said.

And the housing market continues to contract, Mr. Nothaft added.

To obtain the rates in the weekly survey, the 30-year fixed-rate mortgage required payment of an average 0.8 point, the 15-year fixed-rate mortgage required an average 0.7 point and the ARMs required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

In a separate survey Wednesday by the Mortgage Bankers Association, mortgage applications were up a seasonally adjusted 48% last week, compared with the week before.

Update - Wall Street Journal