Mortgage Rates Drop to New Low

By Mike Colpitts

Mortgage rates on a conventional 30-year fixed loan dropped one-one-hundredth of one percent lower for the week on average to a new historic low, according to Freddie Mac. The 4.57% average prompted a wide increase in home refinancing.

Home Mortgage

“With mortgage rates falling to historic lows, refinance activity has been strong over the past three months,” said Freddie Mac chief economist Frank Nothaft. Since the start of the second quarter two-thirds of all mortgage applications have been for refinancing as sales of homes slowed after the expiration of the federal tax credit for home buyers.

Refinancing moved 9.2% higher for the week, according to the Mortgage Bankers Association, the highest it has been since mid-May. But the bankers’ home purchase index dipped 2%, the eighth drop in the last nine weeks as weak consumer confidence troubles housing markets.

Refinances represent 78.7% of all mortgage applications, slightly more than a two-percent rise over the previous week, the highest refinance share since April 2009. The adjustable-rate mortgage (ARM) share of activity increased to 5.4% from 4.7% the previous week as most homeowners remain leery of adjustable rate mortgages in reaction to troubles that many homeowners have had with them in the fall-out of the real estate crash.

“For the month of June, purchase applications declined almost 15% relative to the prior month,” said Mortgage Bankers economist Michael Fratantoni. “And we’re down more than 30% compared to April, the last month in which buyers were eligible for the tax credit.”

However, the rate for a 15-year fixed rate mortgage moved marginally higher during the week on average at 4.07%, three-one-hundredths of one percent above last week, signaling a possible change in future near term mortgage rates. As a result, lenders expect more homeowners refinancing to lock-in rates in coming days.

The U.S. Bureau of Economic Analysis reported that the effective mortgage rate of all outstanding home loans was just below 6% during the first quarter of 2010, the lowest average since figures have been kept since 1977. The swing to lower interest rates for home mortgage holders marks an improvement towards moving to a more stabilized housing market.

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