30-year mortgage rates at new low but caution keeps many on sideline

December 25, 2008

(ChattahBox) — Rates on 30-year fixed-rate mortgages have fallen to a record low for the second consecutive week and the eighth week in a row of declines.  Mortgage rates started falling after the Federal Reserve launched a sweeping new effort in late November to aid the U.S. housing market by purchasing up to $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The rate this week was the lowest since Freddie Mac’s weekly mortgage rate survey began in April 1971. Last week, the Fed, aiming to free up lending and jolt the economy back to life, cut its key interest rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.

Freddie Mac, reported Wednesday that average rates on 30-year fixed-rate mortgages dropped to 5.14 percent this week, down from the previous record of 5.19 percent,set last week. The average rate on a 15-year fixed-rate mortgage dropped to 4.91 percent from 4.92 percent last week, Freddie Mac said. Rates on five-year adjustable-rate mortgages fell to 5.49 percent, compared with 5.6 percent last week. Rates on one-year adjustable-rate mortgages rose to 4.95 percent, from 4.94 percent last week. The rates do not include add-on fees known as points. The nationwide fee for 30-year mortgages averaged 0.8 point last week, compared with 0.7 point for 15-year mortgages. The fee on five-year adjustable-rate mortgages averaged 0.6 point, while the fee on one-year adjustable-rate mortgages averaged 0.6 point.

Nonetheless, consumers remain cautious about buying with the drumbeat of recent news about the turmoil in the housing market. However, the plunge in mortgage rates is drawing in existing homeowners, however, causing refinancing applications to surge to the highest level in more than five years, the Mortgage Bankers Association said Wednesday.

Currently, lenders will refinance only about 60 percent of the homes’ value at the best interest rates, whereas it was relatively easy to refinance 70 percent to 80 percent three or four years ago. Also to qualify,  borrowers generally must have a FICO score of at least 600. Another potential hindrance is that rates for so-called jumbo loans remain relatively high. The average 30-year fixed rate for home loans of more than $729,750 is nearly two percentage points higher than for lesser loans, according to financial data firm BanxQuote, of White Plains, N.Y.


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