By Mike Colpitts
Mortgage rates dropped below 4% on the 30-year fixed rate loan, driven primarily by jitters in world financial markets. The slim drop in 
rates accounted for a single basis point from last week, falling to just 3.99%, according to Freddie Mac.
The fixed 15-year mortgage averaged 3.27%, which is just slightly above its all-time record low average of 3.26%, reached last October. Mortgage interest rates have been bouncing back and fourth slightly since October when they hit their lowest levels in U.S. history. A year ago the 30-year fixed mortgage was 4.61%.
Near record low mortgage borrowing rates are driving a huge volume in refinances after the federal government dropped loan-to-value limits on mortgages being refinanced through Freddie Mac and Fannie Mae.
Refinancing hasn’t been close to being possible for millions of homeowners underwater on their mortgages until the guidelines were redrawn. Mortgage holders with less than perfect credit will also be allowed to obtain lower rates under the program in an effort to lower the number of homes going into foreclosure in the U.S.
Rates below 4.00% are also driving an increase in home mortgage applications for purchases. “These low rates and home prices have pushed housing affordability to record highs this year,” said Frank Nothaft, Freddie Mac’s chief economist. “The National Housing Affordability Index, which dates back to 1971, reached another all-time record high in October for the sixth time in 2011.”
The drop in home prices combined with mortgage rates that are close to being at record lows is positive for consumers shopping for a home, particularly first time home buyers who have no other home to sell in the current economy. Mortgage payments account for just 12.6% of median family incomes, making home loans at their most affordable levels in decades. “This level of affordability likely contributed to the rise in conventional mortgage applications for home purchases,” said Nothaft.
The 5-year Treasury indexed hybrid adjustable rate mortgage averaged 2.93%, up from last week when the rate was just 2.90%. Few homeowners obtaining refinances apply for adjustable rate mortgages since rates on fixed loans are so low. The 1-year ARM averaged 2.80% this week, up from 2.78% last week.