July 26, 2012

Mortgage rates hit another record low

Mortgage rates continued their downward plunge this week, reaching new all-time lows for both the 30-year and 15-year fixed-rate loans.

The average rate for a 30-year fixed-rate mortgage dropped 0.04 percentage point to 3.49%, according to the weekly survey by Freddie Mac. Meanwhile, the 15-year fixed-rate fell to 2.80% from 2.83% the week before. Rates have fallen or matched lows for 13 of the past 14 weeks.

The faltering economic recovery -- both at home and in Europe -- has kept rates on the long slide.

"Market concerns over the strength of the economic recovery brought long-term Treasury yields to new lows this week, allowing fixed mortgage rates to reach record levels," said Frank Nothaft, Freddie's chief economist.

The bumpy road to European economic recovery has also been keeping rates from gaining any ground, according to Keith Gumbinger, vice president of HSH.com, a provider of mortgage information and analysis.

"Fresh worries about Spain's ability to manage its fiscal troubles gives global investors more reasons to pump money into the safety of U.S. Treasury debt, driving yields lower," he said.

Mortgage rates track 10-year bond yields so when they fall, rates soon follow. The 10-year yield dropped 0.04 percentage point in the five days ended July 20 and continued to trend downward this week.

With borrowing costs so low, the savings for homeowners who refinance their loans can be enormous. Switching from a 5% mortgage to a 3.49% rate can lop $178 a month off of payments on a $200,000 loan. That adds up to $2,136 in savings a year.

And many homeowners are trying to take advantage of these dirt-cheap rates. In a separate report, the Mortgage Bankers Association reported that refinance applications reached their highest level since 2009 last week. Refinance loans accounted for 81% of all applications fielded by its members.

Applications for purchase loans are more likely to be approved than refis, however, said Karen Mayfield, national mortgage sales manager for the Bank of the West.

"The pull-through on purchase loans is higher because it's easier for appraisers to hit the number," she said.

Appraisers can more easily find homes that recently sold for similar prices and compare them to the home they're evaluating, said Mayfield.

However, with refis, they don't have a comparable selling price as a starting point. And many refis are denied amid concerns that the loan amount exceed's the home's appraised value.

Still, anyone who is paying off a mortgage at 5% or more should try to refinance it, according to Mayfield.

"Some people think it's harder to get a loan than it really is," she said.

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