How Low Can They Go? 30-Year Mortgages Hit 4.27%

by Dave Crosby on October 16, 2010 in Real Estate Musings, The Buying Process

October 8, 2010

By Stephanie Armour

Mortgage rates hit another record low this week, even as consumers’ worries about the economy continue to hold back demand for mortgages.

Interest rates on a 30-year fixed mortgage fell to 4.27%, with an average 0.8 point, for the week ending Thursday, according to Freddie Mac’s weekly survey. That’s down from 4.3% last week and the lowest since the survey began in 1971.

Rates on 15-year fixed mortgages also slipped to a record low, from 3.75% to 3.72% with an average 0.7 point.

Points are fees; one point is equal to 1% of the loan amount.

Lower rates help, but “the job market recovery is more important than help from the mortgage rate,” says Lawrence Yun, chief economist of the National Association of Realtors.

Rates are falling as investors in Treasury bonds anticipate the Federal Reserve stepping up its purchases to stimulate the economy. The yield on the benchmark 10-year Treasury bond fell to 2.38% Thursday, its lowest level this year. Mortgage rates tend to follow those yields.

Yun says it makes sense to refinance now if home owners can lower their interest rate by at least a percentage point.

Low rates may be critical to the housing market recovery now that a federal tax credit for some home buyers expired in April.

“Given that the tax credit is gone, there need to be other inducements,” Yun says.

The Mortgage Bankers Association reported this week that its index tracking applications to buy homes rose to its highest level since May, although it’s still well below where it was in April.

Its refinance index, however, dropped 2.5% from the previous week.

The uptick in mortgage applications was in large part due to an increase in applications for Federal Housing Administration (FHA) loans. FHA-insured loans are especially popular with first-time home buyers because they may be able to qualify with a 3.5% down payment.

Some home owners say the lower rates have spurred them to action. Stephanie Christopulos of Bergen County, N.J., refinanced this week into a 15-year loan with a fixed rate of 4%.

“The rates were so low, it was a no-brainer,” Christopulos says. “Our refi will save us over $300 a month.”